Casinos may not be the hottest game in town anymore, but they are still attracting bankers.
Though the casino development boom has slowed, banks remain eager to build expertise in the gambling business, and about 35 are active lenders.
Among the leaders: BankAmerica Corp., Bankers Trust New York Corp., and J.P. Morgan & Co. Many of these big banks see the gaming industry as a perfect consumer of their one-stop-shopping efforts.
That's because gambling palaces are avid users of the junk-bond market- the centerpiece of many banks' push into investment banking. So even some banks that missed the gambling development boom are putting their bets on the industry.
"The demand to underwrite business is greater than the supply of business to be underwritten," said gaming analyst Richard Furst of Montgomery Securities, San Francisco. "Though gaming is at a plateau stage, ultimately there will be new licenses and new growth.
"Banks have been positioning themselves and their relationships for growth in 2000 and beyond," he said.
Indeed, many commercial banks say they are gearing up to help the gaming industry refinance the high-yield debt it issued earlier this decade.
About 75% of the $8.8 billion of gaming junk bonds originated in the early 1990s is scheduled to come due over the next six years, according to Larry Klatzin, a vice president and gaming analyst at Donaldson, Lufkin & Jenrette, New York.
"Now we're in a position to help with that," said William Newby, head of gaming lending at BankAmerica Corp., San Francisco, the industry's top lender. "When they were issued, we didn't have the powers.
"Now as those opportunities come up we can look at them and create a solution," whether it is issuing new bonds or syndicating a new bank loan, Mr. Newby said.
But competition for those opportunities is sure to be keen. Donaldson Lufkin, Salomon Brothers, Smith Barney Inc., and Morgan Stanley & Co.-the top high-yield-bond underwriters in the gaming industry-have recently entered syndicated lending.
What's more, it's becoming increasingly difficult to find bankers with gaming expertise.
"Everyone's trying to grow their business," said one Wall street headhunter. "There's definitely a big demand for these bankers," but banks have done such business "only selectively in the past.
"There are really only a few people who can do it. Building a group is not easy."
The main obstacle, however, is the lack of new financing opportunities for underwriters. The wave of legislation that brought gaming to a slew of new locations-including Mississippi, northern Indiana, Kansas City, Mo., and St. Louis-has ended.
As gambling was legalized in these markets and others, many inexperienced casino operators obtained licenses and launched gaming businesses. Though some prospered at first, competitors soon crowded the markets, and the new entrants were not able to produce the cash flow they once did, said Robert Lipps, a vice president in corporate finance at BT Securities.
"With the slowdown of new jurisdiction and legalizing gaming, there's been a huge disparity between the haves and have-nots," Mr. Lipps said.
Greg Zappin, a director in corporate finance for Standard & Poor's, agreed that the winners and losers have become more clear in the gaming industry.
"A lot of the new competition has hit the market, and most of the new capacity has come on line. Now we're seeing how it all shakes out," Mr. Zappin said. "It's stabilizing, although operators are performing at lower levels of profitability."
BankAmerica's Mr. Newby also said the abundance of underwriters focused on the gaming industry has actually helped upgrade the market.
The presence of more banks in the market and their efforts to teach themselves the fundamentals of the casino industry "affords us an opportunity to do some of the more difficult financings," Mr. Newby said.
For some banks, the future of the gaming industry is overseas.
"The international markets are the next area that are seeing expansion in the casino industry, and most of them are on a bigger scale," said John T. Maxwell, a vice president and gaming and lodging analyst at Societe Generale Securities Corp.
Societe Generale recently made the cover of a $200 million offering of senior subordinated notes that Sun International Hotels Limited is making, in part to finance its $450 million expansion of properties in the Bahamas. The French bank earned participation in the bond deal after leading a $350 million loan, which has yet to close, for Sun.
Mr. Maxwell added that because so many banks are crowding into gaming, lower-tier companies have access to the bank market that they did not have before.
"Banks are starting to invest in lower-grade credits to get the pricing levels they used to achieve with the higher grades," he said. "As more banks are looking at the gaming industry's track records and becoming more comfortable with the credits, they're able to do this."