GAMERS OVEREARNING: REFIS TO KNOCK EPS DOWN, ASCA AND MGM AT RISK

We all should be congratulating the financial management teams (gaming not bank managements) for negotiating significant liquidity, loose covenants, and low rates in their credit facilities. Most of these deals were struck in 2005-2006. Unfortunately, all good things must come to an end. With maturities concentrated in 2010-2011 and capex spending still high, these guys have to be at least a little worried. Do they capitalize on any open credit window to refinance early at significantly higher rates or wait and hope that the environment improves markedly over the next year or two. This will be the classic rate vs. liquidity tradeoff. It’s all about risk management. Given the significant risks (declining fundamentals, higher LIBOR, CAPEX, etc.), the risk averse path may be the road most traveled. I guess analysts projecting 5% borrowing costs in perpetuity need to adjust their models.

I believe low interest rates have allowed these companies to over earn during the past several years. The following chart quantifies the amount by which these companies may be over earning. The analysis is based on the assumption that credit facilities were refinanced at estimated prevailing rates for all of 2008. In many cases the impact is huge. Most at risk going forward is Ameristar Casinos. ASCA’s revolver matures in November, 2010. The interest rate is strikingly low at LIBOR plus 1.63%. The prevailing rate in today’s environment would be 3-4% higher, all due to risk premium, essentially cutting ASCA’s EPS in half. If they opt for long-term bonds the impact will be greater.

Due to its CityCenter obligations, high leverage, and a 2011 maturity, MGM is another company to keep an eye on. MGM could be over earning by at $0.40 or 25% of current EPS. This story has a lot of risk. I continue to be worried about the Las Vegas fundamentals and the coming cancelation wave on the residential piece of CityCenter. Refinancing at the next window has to be considered. Look for significantly higher interest expense definitely not contemplated in analysts’ current estimates.

BYD and ISLE appear a bit scary on the surface but won’t see maturities until 2012 and 2013, respectively.

PENN and WYNN look solid due to low leverage and high liquidity. No worries here.


Risk aversion suggests refis, higher interest expens, and lower EPS

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more