Moody's Upgrades U.S. Gaming Cos., But Sees Slowdown in 2017 (WYNN) (PNK) (MGM)

The momentum for ratings upgrades in the US gaming industry is slowing after a year in which credit profiles in the sector showed a broad improvement, Moody's Investors Service says in a new report.

Moody's upgraded 35% of its 37 rated US-based gaming companies over the past 12 months, due to a stable market environment, higher EBITDA margins and lower leverage. However, Moody's is expecting fewer upgrades through 2017, as many companies still face a number of hurdles as they work through qualitative, as well as quantitative challenges.

"The sector faces fundamental long-term challenge, including oversupply conditions, changing consumer preferences and population demographics that do not necessarily favor casino gaming," said Peggy Holloway, a Senior Vice President at Moody's.

There are four Moody's-rated companies - Penn National Gaming (Ba3 stable), Pinnacle Entertainment (Ba3 stable), Wynn Resorts Limited (Ba2 negative), and Affinity Gaming (B1 negative) -- that need to improve their leverage in order to maintain their existing rating.

For Wynn Resorts, the negative rating outlook also reflects Moody's concern that the opening of Wynn Palace will add to the oversupply conditions that currently exist in Macau, at a time where there is already a lot of uncertainty about overall demand trends in that market.

Wynn Palace, a $2.4 billion resort casino development located in China, on the Cotai Strip in Macau, opened last month. The performance of Wynn Palace will be a key factor to any rating decision or outlook revision.

Other challenges that the industry faces include funding the cost of new casino development, small scale and increasing competition, according to the report "Gaming -- US; Regional Gaming Companies Kick it Up a Notch, But Fewer Upgrades Ahead."

For example, Jamul Indian Village Development Corporation (B3 stable) is opening a new casino, which will likely increase its debt ratios during its first full year of operation. Regarding size, many companies lack geographic diversification and are small in terms of revenue. This could pose a challenge should market conditions get tougher.

Moody's subscribers can access the report at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037434

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