Guidance didn't seem to match up with management's enthusiastic qualitative outlook.


"For the first time in several years, we reported revenue increases in each of our business segments during the quarter.  As economic conditions strengthen in our core markets, we are confident that our strategy of keeping a tight rein on costs, generating profitable new revenues and diversifying our sources of cash flow will deliver bottom-line results."  


- Keith Smith, President and Chief Executive Officer of Boyd Gaming




  • Improving economic activity across the country and their focus on cost control helped their results
  • Good economic indicators in Nevada
    • Last year was the second best year for visitation to Las Vegas
    • Core employment in Vegas grew; unemployment declined 2% in 2011
    • Saw a 6% gain sales in Nevada in November
  • Florida legislation is dead for the quarter, but it was clear that any gaming expansion will give parity rights to existing operators
  • While they believe that Federal legislation is preferable for online gaming, they will also go the state by state route if necessary and have already applied for a license in Nevada
  • Las Vegas locals: Their margins are now identical to their largest competitor.  STN grew revenues by 7% YoY but not EBITDA
    • Optimistic about long term growth 
    • Expect that 2012 will be a year of revenue and EBITDA expansion
  • Downtown: Flat EBITDA margin was due to $1MM fuel charge for their Hawaiian business
    • New non-gaming businesses are moving to the area
    • Smith Center will open its doors next month
    • Fremont Street is seeing improvements - area "renaissance" 
  • Double digit gains in EBITDA at Delta Downs and Blue Chip
    • Delta Downs' second best quarter 
    • IP: expect to generate additional savings in insurance, purchasing and utility costs.  B Connected will also help drive their top line - on track to be rolled out in the 2Q12
  • Borgata: Improvements driven by gaming growth. 
    • Cash ADR: $168
  • B Connected Online: The most visited website of its kind. They are enhancing B-Connected 2.0; which will be ready in 2Q
  • Debt: $2.6BN; $1.6BN under R/C. Leverage improved 1 full turn since early 2011 despite increased debt
    • Secured Leverage: 4.2x vs. 4.5x
    • Total Leverage: 6.70x vs. 7.75x
    • Cash: $132MM
    • $216MM maturity in April 2014 - expect to refinance it before it "goes current"
    • Borgata: $75MM under R/C and $46MM of cash
  • 2012 guidance:
    • Corporate expense: $44MM
    • D&A: $200-205MM ($135-$140MM to BYD; remainder Borgata)
    • Stock Comp: $10MM
    • Pre-opening: 4Q is a good quarterly run rate in 2012 - includes $1MM/month to Las Vegas Energy
    • Interest expense: $160MM ($85MM for Borgata)
    • Tax: 35% 
  • 1Q12 guidance:
    • Wholly owned EBITDA: $88-93MM
    • Borgata EBITDA: $32-34MM
    • EPS: $0.05-$0.09
  • Other income in the Q: accounting for the IP acquisition gain ($4MM) and the deposit for Dania ($6MM).  



  • Thinks that STN is buying revenue growth in the locals market with promotional spending
  • Visitation was steady in the quarter, but seeing some growth in spend per visitor
  • Sees 60% flowthrough on any revenue improvement in 2012
  • Online gaming: were hoping that it would get attached to the payroll tax extension but it wasn't. Are hopeful that it can still get attached later this year
  • They are waiting for their online gaming application license to be processed by Nevada and for what the ultimate rules will be in Nevada
  • $25MM tribal contract/investment? 
    • It's in California, but they are in very early stages and aren't ready to report anything further
  • IP D&A was $4.8MM in 4Q
  • Are not planning on announcing any acquisitions over the next few months
  • Revenue growth in the locals LV market is modest. Thinking low single digit growth for 2012.
  • IP synergies: Labor saving changes were implemented in January
    • Insurance renewal in 2Q
    • Think that they will be in excess of $5MM
  • All of their key management employees are still there at Borgata, but they have lost some employees to Revel
  • Margaritaville Casino is scheduled to open with no hotel rooms in Biloxi.  Don't see it impacting their business given the challenging location of the property.
  • They will provide more disclosure on the IP results in their 10k



  • Las Vegas Locals: "All four major properties in the region posted year-over-year EBITDA growth, as we improved operating margins by 170 basis points despite a heightened promotional environment."
  • "EBITDA at the three Downtown properties rose 7.2% during the fourth quarter; however, this strong performance was offset by significantly higher fuel expense associated with the Company's Hawaiian charter service."
  • "Regional results reflect the acquisition of the IP, as well as strong operating performances at Blue Chip and Delta Downs.  The IP contributed $44.6 million in net revenues and $8.4 million in EBITDA to regional results following our acquisition of the property on October 4."
  • "Borgata continued to lead the market, achieving an all-time record market share of 21.2% in the fourth quarter."

China Lowers RRRs – Now What?

Conclusion: Absent confirming quantitative signals, we contend that China’s surprise RRR cut is not a leading indicator for broad-based monetary easing in China over the intermediate-term. Moreover, we think it’s important to note that the potential for Chinese growth to reaccelerate due to easier monetary policy is structurally impaired absent a removal of curbs within the property sector.


Over the long U.S. weekend, China surprised us by lowering its benchmark Reserve Requirement Ratio (RRR) for major banks by -50bps to 20.5%. This marks the second time China lowered RRRs in the past three months (we saw a -50bps cut in early DEC as well).


We are surprised by the decision for two reasons:

  1. The breakout in global energy prices since the Federal Reserve pledged [at least] an additional year of easy money (Brent +9.8%; WTI +5.5%) has been quite pronounced and looks to erode a fair amount of intermediate-term downside in Chinese inflation statistics. In the PBOC’s defense, global food prices remain a holdout and that should keep a lid on China’s intermediate-term CPI outlook for now (CRB Food Index -0.4% since 1/25); and
  2. Over the past 2+ months, expectations of monetary easing in China have clearly inflected, as evidenced by the slopes of 1yr O/S Rate Swaps, 1yr Sovereign Yields, and relative pricing in the FX Forwards markets.

 China Lowers RRRs – Now What? - 1


China Lowers RRRs – Now What? - 2


China Lowers RRRs – Now What? - 3


Not surprisingly, Chinese equities (as measured by the Shanghai Composite Index) closed up in the two trading days following the cut, putting the index at 2,381, or 99bps above our TREND line of 2,358.


China Lowers RRRs – Now What? - 4


We need to see this [potential] TREND line breakout confirmed by further price/volume/volatility data in the coming weeks. A sustained breakout would signal to us that Chinese officials have more coming down the pike in terms of policy easing than we would expect given the two reasons we laid out above.


Interestingly, in conjunction with the RRR announcement, Jin Qi, an assistant governor at the PBOC, did say that “monetary policy will remain prudent in the face of a grim international situation, price pressures, and imbalances in the domestic economy.”


Referring to the aforementioned imbalances, Chinese Premier Wen Jiabao said recently that China will not take its foot off of the brake with regards to the property sector. It is our view that until such curbs are lifted, monetary easing in China will have a limited effect on reflating growth – particularly given the share of fixed-asset investment as a driver of the Chinese economy and the headwinds facing household consumption (accelerating inflation pressures) and net exports (decelerating demand).


China Lowers RRRs – Now What? - 5


Lastly, we show the chart below to help contextualize where China is in its easing cycle. Looking back to the last time China embarked on monetary easing (‘08/’09 period), China used its various money supply levers in different order; of particular note, China lowered its benchmark lending rate (mid-SEP and early-OCT) and deposit rate (early-OCT) prior to lowering RRRs in mid-OCT. The reversal signals to us that it may be prudent to not expect a similar trend of broad-based easing over the intermediate term at the current juncture.


China Lowers RRRs – Now What? - 6


All told, absent confirming quantitative signals, we contend that China’s surprise RRR cut is not a leading indicator for broad-based monetary easing in China over the intermediate-term. Moreover, we think it’s important to note that the potential for Chinese growth to reaccelerate due to easier monetary policy is structurally impaired absent a removal of curbs within the property sector.


Darius Dale

Senior Analyst


In preparation for MGM's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • MGM's JV, Diaoyutai MGM Hospitality Limited, has entered into an agreement with Suning Real Estate Group, a subsidiary of Suning Group, for the Suning Bellagio Shanghai Bund hotel as a part of a strategic relationship between the companies for the development of hotels within the People's Republic of China.
  • The hotel will feature approximately 200 rooms and world-class retail and entertainment amenities, which is expected to be completed in 2015.


  • CityCenter Holdings and CityCenter Finance Corp announced that they have completed their issuance of $240 million in aggregate principal amount of senior secured first lien notes in a private placement.  The notes were priced at 104.75% of par and are additional notes constituting a part of the same series as the $900 million in aggregate principal amount of 7.625% senior secured first lien notes due 2016 issued on January 21, 2011.  CityCenter will use the net proceeds from the offering, together with cash from its balance sheet, to repay $300 million of the outstanding borrowings under its $375 million senior credit facility. 


  • MGM and ASCA announced a strategic marketing relationship for the companies' rewards programs – MGM Resorts' M Life and Ameristar's Star Awards/Plateau Players Club.  Beginning in mid-March, the strategic agreement allows targeted MGM Resorts' M life members to receive offers and benefits at Ameristar casinos and Ameristar's Star Awards/Plateau Players Club members to receive offers and benefits at MGM Resorts' properties in Las Vegas.


  • MGM Resorts International  announced the launch of a proposed amendment to its aggregate $3.5 billion senior credit facilities which will extend the maturity of consenting lenders from February 21, 2014 to February 23, 2015. The Company has asked lenders to approve the amendment by February 16, 2012. Lenders approving the amendment will receive 20% reductions of their existing credit exposures.
  • Extending Lenders' loans will be subject to a pricing grid that decreases interest rates by as much as 250 basis points based upon collateral coverage levels. In addition, the LIBOR floor on extended loans will be reduced from 200 basis points to 100 basis points.  Lenders approving the extension will receive amendment and extension fees totaling 50 basis points times their reduced exposures. The transaction also includes covenant modifications and other amendments. 


  • Issued $850 million in aggregate principal amount of its 8.625% Senior Notes due 2019
  • Net proceeds of approximately $836.1 million (after giving effect to discounts, commissions and offering expenses)
  • The Notes will mature on February 1, 2019. The Company will pay interest on the Notes on February 1 and August 1 of each year, commencing on August 1, 2012.  Interest on the Notes will accrue at a rate of 8.625% per annum and be payable in cash.





  • Bookings and current asking rates are up. In fact, the convention business is particularly strong. September was one of our highest convention booking production months ever, and I think that emphasizes the fact that our group business for 2012 and beyond remains quite robust.”
  • October was the best profit month we have had all year here in Las Vegas.”
  • “86% of Crystals is currently under lease.  Dolce & Gabbana's men's and women's stores... are scheduled to open early next year.”
  • "Quite a few things are going on in this fourth quarter, which we think will benefit us. A number of events, ... an Eagles concert this weekend, another one coming up. We have the Pacquiao fight in a week. We have a number of special events and some exciting activities going on for the balance of the quarter, particularly leading up to New Year's Eve when two new big nightclubs open up for us, Hyde Lounge here at Bellagio and Mirage."
  • “We feel comfortable giving a forecast of a RevPAR increase of 10% here in the fourth quarter, with the best gains actually coming in the highly important FIT market. We're also doing quite well in leisure as well… Up 10% for Aria as well in the fourth quarter.”
  • [2012 Group bookings] “The first quarter has a tough comp with CONEXPO year-over-year, so that's a difficult comp when you look at the citywides at 140,000, but overall, we're projecting our convention room mix in 2012 based on our pace to be at or slightly higher where we were forecasting 2011.  So, we are making good headway. The pace is continuing to pick up. September was strong, and we think from an overall mix standpoint, we'll be at or slightly better than where we finish up 2011.”
  • “The same is true with 2013, and in both cases, the rates are higher.”
  • “So, the key for us for at the moment is focusing on getting the absolute yield in terms of EBITDA yield and recognizing that there is going to be some variation.  What we have seen now coming through and with the record on October, we saw that across all the revenue streams, and that did deliver really solid yield performance and EBITDA performance in that mid-20s range.”
  • [MGM Grand remodel] “It's starting literally now. That's $160 million remodel program. It's a much larger room base; that's 4,300 rooms. At that point, there'll be about 700 rooms out of service at any given time. And if early indications are correct, we're going to get probably not a $30 increase, but we'll get $10, $20 increase in ADR at MGM based on that.”
  • “MGM's also been one of the benefactors of the demand in leisure and FIT. And especially in the summer periods, they have a lot of high demand because of their pool. I think they had a pretty decent convention mix also.”
  • “Maybe 1% or 2% (growth) at most in terms of expenses [in 2012].  If we get the revenue growth that we expect, we should have significant flow-through and margin improvement.”
  • “I can say a few comments about October. It was extraordinarily broadly based. We had a really wonderful month in terms of room revenue and profits. We had strong casino play. The core properties, which we've mentioned before, were the ones that have been increasing year-over-year the most continue to do extremely well. October I think in the city was a good month, and that, of course, benefits the mid-market properties particularly. Bellagio is really on fire in terms of its revenue growth. It's the leader here, the best property, and it's setting a tone for the luxury properties that we have, MGM and Mirage and Aria, as well.”
  • “In terms of the mix, convention mix in the third quarter was about 12.5% of this year. It's going to be higher in the fourth quarter, probably around 14%. That'll bring the year-end at 14.5%. And we'll be higher next year. We'll be closer to 15% next year…. And Aria will be about 16.5%.”
  • [Leisure mix at 40% in 2011] “And it will be around there next year also. We continue to move that around, but we're shrinking the spread between the FIT and leisure.”
  • “We've just completed exercise – the exercise of master planning the casino floors, in particular, at Luxor and Excalibur and New York-New York. So, we have lots of work going into 2012 and 2013 in the mid-tier properties, much of it in the public areas….. SKYTOWER will be next year…. We have some more work to do at Luxor and Excalibur. We started those room remodel programs. The Hotel at Mandalay Bay – but there's a schedule, so we can pace out the capital; we can pace out minimizing the amount of rooms out of service at any given time, but expect that this will be going on, you know, on a continual basis.”


  • We continue to make operational improvements and believe we still have additional room for further growth, both in terms of the utilization of our table games and, more importantly, some of the work that Grant and his team have been undertaking over the past several months, which include the recent opening of our Platinum Gaming Lounge, a high-end main table floor offering that opened up in stages in both August and September here in the quarter.”
  • “Work continues on our new in-house VIP gaming area, scheduled to be completed in late November and open in early December. And so we've had a little bit of disruption as we gave up our real estate, as you'll recall, to our VIP in-house gaming space earlier in the year to one of our junket room operators. So, that comes online in December, and we look forward to that.”


  • “We expect to spend approximately $275 million in capital in this year, which includes completion of the room remodel activity at Bellagio and the start of the room remodel program at MGM Grand here in October. But this $275 million does not include the capital being expended by MGM China.”
  • “We have plenty of liquidity to get us through most of 2013 today. And so right now it's all about being opportunistic and bringing down this cost of capital. And you should see us doing that, both here in the U.S. with our U.S. credit facility and financing activities, as well as Macau. Macau is an opportunity there that I think throughout the course of this year and into early next year, our highest priorities in this category are those two credit facilities, the domestic one and the Macau facility.”
  • “So, it's – 2012, '13, '14 we believe will be a story of dramatic reduction in our overall interest because the debt's coming down and the cost of capital is coming down, as well.”

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Now What? SP500 Levels, Refreshed

POSITIONS: Long Financials (XLF), Short Consumer Discretionary (XLY) and SP500 (SPY)


The Greek stuff is out of the way. Now what?


Today’s green team is being led by Inflation Expectations Rising (Basic Materials, Energy, and Gold), while the red team is being led by Growth Expectations Falling (Asia, Transports, Consumer).


This isn’t my first rodeo riding against the rail. The risk, as always, is that this time is different – and inflation doesn’t slow growth. Most people thought it was different this time with Wal-Mart (WMT) until today too.


Here are the lines that matter most across all 3 core risk management durations in my model: 

  1. Immediate-term TRADE overbought = 1363
  2. Immediate-term TRADE support = 1352
  3. Intermediate-term TREND support = 1271 

Could we go up, up, and up from here? Sure. Will we ever have a -1% down day again (we haven’t in 2012)? Sure. That’s what makes this a tightrope of expectations up here. It’s a long way to 1271 from 1352.


I’m sure I sounded as wrong about this on green days in February of 2011.



Keith R. McCullough
Chief Executive Officer


Now What? SP500 Levels, Refreshed - SPX


Keith bought BYD in the Hedgeye Virtual Portfolio at $9.14 According to his model, the TRADE range is between $8.91 and $9.56, and the TREND support level for BYD is at $7.28.



BYD is down over 4% today, pretty much in line with what the stock was up on Friday.  BYD missed our EBITDA number slightly – $114.3 vs $115.0 million – but we were high on the Street.  Q4 EBITDA did exceed consensus by $1.5 million, so a very solid quarter.  We continue to be impressed by the performance of the Las Vegas locals properties which generated a combined 8% YoY increase in EBITDA, and every property was up.  Moreover, we think management’s commentary will be positive on the noon call as it relates to this market and the outlook for sustained growth (finally). 








  • This investigation began in July 2010, when Mr. Okada approached Mr. Wynn about building a casino in the Philippines.  The request triggered an investigation by the Compliance Committee.
  • In February 2011, one group that was hired to do a follow-up assessment about doing business in the Philippines uncovered some questionable associations of Mr. Okada in the Philippines. 
  • The license granted to Okada in the Philippines in May 2010, was granted by the official whose son benefited from some comps that Okada's firm had granted him 
  • The Board advised Mr. Wynn against doing business in the Philippines
  • In August 2011, they decided that they needed to follow up under the Foreign Corrupt practices Act and all members of the Board attended that meeting aside from Mr. Okada who refused to received FCPA training 
  • There were also issues surrounding the individual that sold the Philippines land to Mr. Okada - who was convicted of tax evasion on the proceeds from the sale for understating the proceeds.
  • September 2011: Compliance Committee met again and discussed the indictment of certain PAGCOR officials, the sale of the land to Mr. Okada, and other related matters.  Mr. Okada had a negative reaction about the findings of the Board's investigation.  Mr. Okada said that it was customary under Asian practices to give gifts to people who you do business with
  • In September, Wynn's attorneys met with Mr. Okada and his attorney to raise the Board's concern about him doing business in the Philippines and it's potential adverse impact on Wynn Resorts.  Mr. Okada did not recognize the potential for conflict and refused to cease his operations in the Philippines or to resign from the Board. 
  • The Wynn Board subsequentially hired Judge Freeh.  Okada refused to be interviewed by the judge by the deadline of February 2, but agreed to an interview on Feb 15th for 7 hours. Freeh's report was submitted to the Board on February 18th. The report found issues with Okada's activities in Philippines and that they posed a violation of the Foreign Corrupt Practices Act and that he sees nothing wrong with giving gifts to government officials with whom he does business with. 
  • Universal paid part of the expenses of a Philippines official's trip to Beijing during the Olympics
  • As a result of all of the findings of the Board's investigation, they found Mr. Okada "unsuitable"
  • Wynn's Articles of Incorporation state that pursuit to a finding of unsuitability they must take steps to redeem that person's interest in the Company and failure to do so will result in risk to Wynn
  • The Company engaged Moelis & Company to determine the fair value of the share, and Moelis determined that a 30% discount was appropriate given the restrictions on the shares.  The Articles state that redemption may be made in cash or promissory note bearing interest at 2%. 
  • The redemption has already occurred
  • Okada's actions against Wynn's gift to the University of Macau was not about the amount but actually suggested that the pledge be made over 5 and not 10 years.  Mr. Okada was present at the gifting ceremony. The gift to the University was fully vetted by the Board. 


  • Law Firms envolved: Wachtell Lipton was advising them; Bob Shapiro; Gibson Dunn
  • Minutes of the company meetings are provided to regulators at the time they are prepared.  The gaming regulators in Nevada were aware of the ongoing investigation
  • Civil litigation was initiated by the Company concerning Mr. Okada's suitability to sit on Wynn's Board.  A copy of the Freeh report was filed in that case and is publicly available.
  • The share redemption occurred on Saturday - the actions available to Mr. Okada cannot be subject to an injunction because it has already occurred.  He can contest the valuation though.
  • There is no other action required from Wynn to complete the redemption
  • The Nevada gaming commission has the ability to review everything that has occurred and they are going to conduct their own investigation
  • The transfer agent was notified that the redemption has occurred and they are obligated to comply
  • There are 37 separate incidences of potential violations in the Freeh report



  • WYNN's "Compliance Committee has concluded a year-long investigation after receiving an independent report detailing numerous apparent violations of the U.S. Foreign Corrupt Practices Act (FCPA) by Aruze USA, Inc., its parent company Universal Entertainment Corporation and its principal shareholder, Kazuo Okada."
  • "Freeh’s investigators uncovered and documented more than three dozen instances over a three-year period in which Mr. Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the Company’s Code of Conduct. These troubling discoveries include cash payments and gifts totaling approximately $110,000 to foreign gaming regulators."
  • “Mr. Okada and his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two chief gaming regulators at the Philippines Amusement and Gaming Corporation (PAGCOR), who directly oversee and regulated Mr. Okada’s Provisional Licensing Agreement to operate in that country,” and have “consciously taken active measures to conceal both the nature and amount of these payments.”
  • "Based on the Freeh Report, presented to the Wynn Resorts Board of Directors on February 18, 2012, the Board determined that Aruze USA, Inc., Universal Entertainment Corporation and Mr. Okada are “unsuitable” under the provisions of the Company’s Articles of Incorporation." and requested Mr. Okada's resignation from the Board. 
  • "Pursuant to the finding of “unsuitability,” the Board has redeemed Aruze USA, Inc.’s 24 million Wynn Resorts’ shares. The terms of redemption are outlined in Wynn Resorts’ Articles of Incorporation, which have been in place since the Company’s inception... The Company engaged an independent financial advisor to assist in the fair value calculation and concluded that a [30%] discount to the current trading price was appropriate because of restrictions on most of the shares which are subject to the terms of an existing stockholder agreement. Pursuant to the Articles, the Company has issued a 10-year $1.9 billion promissory note in redemption of the shares. The note matures on February 18, 2022 and bears interest at the rate of 2% per annum."
  • "Wynn Resorts today filed a lawsuit against Mr. Okada, Aruze USA, Inc. and Universal Entertainment Corporation inNevada District Court, Clark County for breach of fiduciary duty and related offenses."

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