The casino industry, long thought to be recession proof, is taking a big hit these days as the economic slowdown takes its toll. Even Las Vegas, the capital of casino gaming in the United States, is suffering. The casino industry, believing its own hype about being recession proof, has been on a building and buying spree that has left it heavy with debt. Those debts, in many cases, are calling into question the financial viability of some of the biggest names in casino gaming. And many ongoing gaming companies find that expansion or building plans that need additional financing are now in trouble. From the Wall Street Journal:

Several casino companies have defaulted on debt or have sought bankruptcy protection, tripped up by costly land acquisitions and ambititious new development. Kentucky based Tropicana Entertainment LLC filed for Chapter 11 bankruptcy protection in May, defaulting on $2.67 billion in bank and bond debt. Greektown Holdings LLC of Detroit and Illinois based Legends Gaming, which has casinos in Louisiana and Mississippi, have also sought bankruptcy protection.

The credit worries have driven down the value of publicly traded debt issued by casinos.

Other companies are sweating under debt agreements that require them to maintain minimum levels of cash flow, even during an economic drought. The public-debt market, spooked by four casino bankruptcies this year, reflects the concerns. Bond prices for a half-dozen casino companies, from Harrah’s to small, Las Vegas based Herbst Gaming, are trading at distressed levels, frequently below 60 cents on the dollar, on debt totalling about $5.3 billion.

And as the market turns up its collective nose at casino debt the credit rating agencies have been downgrading casinos on a large scale.

Moody’s Investor Service, which rates $79 billion in debt at casino companies, has downgraded 17 casino companies this year. Eleven more are on review for possible downgrade, from small but storied Vegas names such as Golden Nugget to regional players like Penn National Gaming, which has 19 casinos, racetracks and riverboats across the Midwest and South.

And the publicly traded shares of some of the major casino players have taken a huge hit.

Las Vegas based Boyd Gaming Corp. has fallen to about $12 a share, a five year low, from a high of $54 last summer. After topping $98 last fall, shares of casino giant MGM Mirage now trade below $35.

The Journal story actually raised the spectre of a default by industry giant Harrah’s, currently holding about $17 billion in debt. Harrah’s took pains to deny that potential, and cited ongoing improvements and programs to fly loyal customers in on their own jets. And a key portion of the story pointed to the fact that many casinos have come to rely heavily on non-gaming revenue, including pricey restaurants and expensive amenities. These revenues are falling fast in this economic climate, further burdening the industry. It was an interesting read in the Journal, and certainly will cast some doubt on the concept of “destination casinos” here in Massachusetts. And with many of the major players heavily debt burdened robust expansion plans may be put on hold. The Journal does not have a free web site, so I cannot link to the article, printed yesterday.