LEISURE LETTER (10/28/2014)

Tickers:  SGMS, GTCH.MI, MAR

EVENTS

  • Oct 28:
    • HEDGEYE EBOLA CALL 1 pm , code 651216#
    • GLPI Q3 earnings 10 am
    • HOT Q3 earnings 11:30 am , code 10325720
    • WYNN Q3 earnings 4:30 pm , pw 16870074
    • MAR Q3 earnings 5 pm , ID 59390131
  • Oct 29: H Q3 earnings 11:30 am code 95150754
  • Oct 30:
    • HST Q3 earnings 10 am
    • NCLH Q3 earnings 10 am
    • MGM Q3 earnings 11 am , pw 6307991
    • BYD Q3 earnings 5 pm , pw 8021592
  • Nov 3:
    • BEE Q3 earnings 11 am , pw 37266467
    • SHO Q3 earnings 12n , ID 75906336
  • Nov 4: RHP Q3 earnings 10 am
  • Nov 6:
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691

COMPANY NEWS

SGMS(Bloomberg) Scientific Games Banks Said to Put Off $3.19bn Bridge Loan Sale.  JPMorgan, BofA and DB, which were hired by SGMS to underwrite and sell the bridge loan, failed to gather interest from investors by an Oct. 3 deadline.  According to sources, the bridge loan debt includes a $485 million seven-year secured portion that pays interest at 5.75 percent, a $2.2 billion eight-year unsecured bridge slice that pays 7.25 percent and a $500 million 10-year unsecured loan that pays at least 7.75 percent.  The rate on all three loans would increase by 0.5% every 90 days until the acquisition is closed or the debt is repaid with bonds.  Interest rates would have been capped at 7.5 percent on the secured bridge loan and 9.75 percent on the 10-year unsecured loan.

Takeaway:  Junk yields have been rising. Higher interest expense for SGMS coming.

 

GTECH – will provide the Washington Lottery with a central system based on its Enterprise Series platform, 3,800 Altura® GT1200 lottery terminals, Gemini® Touch self-service machines, in-store multimedia technology and support services.  GTK expects to receive $150 million in revenue during the 10-year contract.

Takeaway:  solid system sale

 

TRUMP – (northjersey.com) is asking a bankruptcy court in Delaware for permission to sell the last 353 of its slots to Patriot Gaming & Electronics, a New Jersey firm that sells new and used slot machines and parts.  The machines would be sold for just under $150,000.

 

MAR – Construction of Lapita Hotel started in February 2014, with the opening scheduled for 2016.  The 503-key Lapita Hotel will form part of the Autograph Collection, an exclusive ensemble of independent luxury hotels, within the Marriott International brand portfolio

Takeaway: Marriott building its luxury presence in Dubai

 

MSC (ANSA) Judicial authorities on Monday seized assets worth 33 million euros from MSC Cruises CEO Pierfrancesco Vago and from Francesco Zuccarino, the president of the board of directors of the cruise company.  Vago is suspected of failure to declare earnings, while Zuccarino is suspected dishonest earnings declarations, the sources said.

Takeaway: Troubling development for MSC

 

 

INDUSTRY NEWS

Graftbuster – chief discipline inspector of the Communist Party of China (CPC) Wang Qishan said no inner-Party cliques are allowed, and all members must abide by Party rules.  

Takeaway:  More rules and regulations for Chinese political officials

MACRO

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


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