Industry News
The casino sector has seen many companies delay or cancel development projects due to funding difficulties.
The sector got a boost as the Fed reduced the federal funds rate, which was at 1.5 percent, to 1 percent. The rate is the interest that banks charge for overnight loans.
Earlier, MGM Mirage reported its third-quarter profit slid 67 percent, partly on a write-down. Analysts focused more on cost the company's control and funding efforts.
MGM obtained a $1.8 billion senior bank credit facility earlier this month to help with its $9.2 billion CityCenter project in Las Vegas reports it has received more commitment letters for more than $500 million. The firm is working with joint venture partner Dubai World to get more funds. The firm is looking to secure a total of $3 billion in financing.
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Jake Fuller, an analyst with Thomas Weisel Partners, said that MGM discussed during a conference call with analysts a $400 million reduction to CityCenter's budget. That mad the project easier to fund, and lead to a lower-than-expected estimate for 2009 capital expenditures of $200 million.
Stifel Nicolaus & Co.'s Steven Wieczynski said the cost reductions, should help the stock.
"Any gaming operator that postpones spending and preserves capital in this environment should be rewarded, in our view," he wrote in a client note.
Investors, hopeful that the Fed would likely to cut a key interest rate by as much as a half point or three-quarters of a point later Wednesday afternoon, also bought back into the sector while casino operators' shares languished at bargain basement prices due to recent fears a recession was imminent.
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