Penn National Gaming issued a stakeholder letter to investors on Monday, updating them about the measures undertaken by the company to mitigate the significant risks generated by the ongoing situation with the spreading coronavirus.
The Pennsylvania-based gaming operator Penn National was ranked among the casino operators that would not last long in case casino closure was further extended. The gambling company burn rate of $6.4 million of cash per day was showing it would not survive more than 5.2 months, prompting Penn’s management to action.
In the company’s letter to stakeholders, President and CEO Jay Snowden, provides a more detailed picture of how management sees business continuation and what measures are being implemented to protect the company.
His letter points out that the geographic diversification model adopted by the company that allows it to have no more than 15% of revenue exposure to a single state across 19 states will certainly help it position-wise with regards to the possible governmental approach of state-by-state phase-in.
During the crisis, however, the guiding principle remains to preserve liquidity and provide continuation on the long-term objectives, even if some of the measures turn out to be painful on a personal and professional level.
Property Sales
With regards to liquidity, Penn National, April 16, entered into an agreement for the sale of the Tropicana Las Vegas property to its principal landlord, Gaming & Leisure Properties /GLPI/, in exchange for rent credits to the amount of $307.5 million. Additional $30 million in rent credits will be received from GLPI, as it agreed to buy the real estate of Penn’s new gaming facility in Morgantown, PA, which is currently under construction. As part of the negotiations with GLPI, Penn National was granted an exclusive option to buy operations of Hollywood Casino Perryville in Maryland, an option that can be exercised anytime in 2020.
Earlier, the company succeeded in reaching an agreement with its principal lenders to amend the credit agreement for the suspension of financial maintenance covenants for the remaining quarters of the year.
Trimming Costs
Through property transactions, company-wide furloughs and decreases in compensation to the executive team and Board of Directors, as well as other cost mitigation measures, the company managed to significantly cut its operating costs.
By the end of March, Penn National had $730 million of cash and cash equivalents on its balance sheet, having drawn down its revolving credit facility. Reaching monthly cash burn of $83 million gives management enough confidence that the ongoing health crisis will be successfully weathered.
Contribute to the Greater Good
During these hard times Penn never abandoned its responsibilities to the society, donating more than 45 tons of perishable food items to local food banks and homeless shelters, providing hundreds of hotel rooms and thousands of masks, gloves and other personal protective equipment to first responders around the country.
“I am very proud of the fact that despite the challenges our Company and team members are facing, we all continue to think and contribute to the greater good.”
Jay Snowden, President and CEO, Penn National Gaming