In this week’s piece we discuss some considerations for medium to longer-term effects to our coverage from coronavirus once the infection rate peaks. We also discuss who we think wins and loses from these changes.
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Credit and liquidity are in focus given the highly precarious environment, and in this week’s piece we examine both factors for our coverage. Specifically, we look at covenants and the implied EBITDA decline before triggering a credit event for each company. However, we also believe current available liquidity and cash burn matter more in the near-term. Last week we showed an interactive cash burn model for gaming operators, since they would be most at risk in our coverage, in our view. We’ve updated that model which can be downloaded here, and we’ve also now built a new interactive cash burn model for our lodging stocks that can be downloaded here. Finally, in this piece we also examine how bond prices for our coverage have trended in recent weeks.
This file is an interactive model where individuals may plug in their own assumptions to see the approximate cash burn per day for a decline in revenue due to coronavirus.
Last week we were on the road with WYND, including the CFO and the head of IR. Not surprisingly the questions focused on coronavirus and downside risk to their business. A key theme from management was the idea that the business model is resilient, and that they are better positioned than other travel industries. Ultimately, this could be a time for the industry to prove the model is different, which we think could lead to better multiples over the longer term.
It’s been a wild week with constant news flow that has continued into this weekend with several casino closures. In this week’s piece we discuss several topics with new charts. Specifically, we highlight 1) an analysis on cash burn versus available liquidity for gaming operators, as several casinos in the U.S. have now temporarily closed, and we assume more closures are likely – note we show this cash burn analysis in Exhibit 1, which is an interactive model that can be downloaded here; 2) our thoughts on what’s going on with ERI, including the CZR arb spread which has expanded; 3) what ERI is worth on a standalone basis, even though we continue to expect the deal to go through; 4) high-yield spreads in perspective, and how that may be affecting our stocks; 5) a focus on liquidity, with companies drawing on their revolvers; 6) MGM pulling its tender, which we think ends up working out well for the company; 7) an insider purchase from the WYND CEO this week, but generally much fewer...
This file is an interactive model where individuals may plug in their own assumptions to see the risk reward at current price levels. The file also shows what happened to prices and valuations in prior downturns.
ERI is now down 52% from its all-time high in less than a month, and this week alone it was down 33%, as coronavirus continues to weigh heavily on ERI and our coverage. We think the two specific concerns are 1) ERI/CZR leverage, and 2) it’s a casino operator, with the view that demand will be impacted by coronavirus. We’ll discuss these two ideas with several points. Specifically, we show the following: how large drawdowns are not uncommon and historically have been great buying opportunities; ERI/CZR liquidity including debt maturities, revolvers, and any covenants; how much revenue would have to decline before ERI/CZR is not free cash flow positive; the mix of customers between U.S./non-U.S., drive/fly, and leisure/business; and why we believe the ERI/CZR iGaming and sports betting segments will add substantial value with a potential spinoff later this year (and provide more liquidity and de-leverage capability).
In this week’s piece we examine risk metrics for our coverage following last week’s severe selloff. Specifically, we show current debt maturities by year, current undrawn borrowing capacity, and current leverage for each company in our coverage. We then show how current credit spreads for a couple metrics compare to historical levels. For historical context we also show how much revenue declined in prior recessions for the sub-industries within our coverage, for GGR, RevPAR, timeshare contract sales, and cruise net yields, though it seems the impact from coronavirus is likely to be felt differently depending on how this evolves.
WYND reported 4Q results this morning (02/26/20). Adjusted EBITDA was $265M, versus consensus and our $268M estimate. Adjusted EPS was $1.58, versus consensus of $1.56 and our $1.57. WYND missed tour flow guidance by ~300bp and VPG guidance by ~350bp, but apparently results improved sequentially following tactical changes which produced a record December in terms of VGP and tour flow. WYND still only modestly missed EBITDA expectations due to cost cuts. The initial FY20 EBITDA guidance of $1,030M-$1,050M was similar to prior consensus of $1,044M. Asia is less than 1% of EBITDA, and as of yesterday, WYND has not seen any impact to bookings or cancelations from coronavirus.
In this week’s piece we discuss a few charts from the week. Specifically, we’ll discuss 1) the trend in daily new coronavirus cases and “coronavirus” Google searches; 2) how cruise stocks have historically traded after prior exogenous events as a guide for coronavirus; and 3) why CHH’s high relative valuation to HLT and MAR does not seem justified to us.
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