U.S. casino operators, whose Louisiana and Mississippi coast casinos recently got battered by Hurricane Katrina, are battening down the hatches in anticipation of Hurricane Rita.
With Rita expected to make landfall on the Texas coast near the Louisiana border, casino operators this time around are worried about Lake Charles, La., a regional gambling destination within 40 miles of both the Texas border and the Gulf of Mexico.
( HET), the world's largest casino operator,
Isle of Capri Casinos
all closed their Lake Charles casinos Thursday in anticipation of Rita's arrival and as local parish officials ordered an evacuation.
shuttered its casino at the Delta Downs Racetrack in Vinton, La., about a 30-minute drive west of Lake Charles.
The companies all could see their casinos damaged if Rita packs enough of a punch, although Lake Charles' inland location could spare it the worst of her wrath. Casino operators typically carry insurance covering property damage and business interruption, so the financial impact of any damage to their Lake Charles properties could be minor if insurers make good on claims.
Pinnacle, for example, has $400 million of such insurance. The company is still dealing with the impact of Katrina, which flung Pinnacle's Biloxi, Miss. riverboat casino out of the water and onto a parking lot, causing extensive damage, and caused the closing of its New Orleans casino.
Pinnacle says its coverage from one named hurricane will not diminish potential claims of $400 million from another storm, meaning it could max out its coverage on each storm. The company's L'Auberge du Lac property in Lake Charles, which has been a hit since opening in May, cost about $365 million to build, Pinnacle's CEO said in a recent conference call. That suggests the cost of even a full reconstruction might be covered.
Of course, insurance policies are subject to interpretation, noted one casino official, and that means forecasting potential disaster payouts is tricky.
Another threat might not be covered by insurance. Even if Rita doesn't damage the Lake Charles casinos, it could depress business at them if it hurts the Texas coastal region near Houston.
"The bigger issue is that Houston and the surrounding areas are the main feeders for the Lake Charles market," says Matthew Jacob, an analyst at New York-based Majestic Research, which does no investment banking.
Fears about Rita's impact on casino operators have helped to depress their stocks in recent sessions, although shares of Boyd, Harrah's, Isle of Capri, and Pinnacle all logged solid gains Friday. The stocks appeared to get a boost from Morgan Stanley's upgrade of Boyd to overweight from equal weight, with the investment bank saying Boyd shares have become attractive from a valuation standpoint thanks to recent selling. Also helping the stocks may have been Rita's shift slightly to the east, which has some energy traders and analysts speculating that the impact on the Houston area might not be quite so bad.