121714_AtlanticCity_300North American gaming sector credit risks are looking less palatable heading into 2015, according to Fitch Ratings. Regional operators free cash flows, which seemed quite robust during this period last year, are starting to look more fragile amid persistently weak same-store trends, REIT spin-off announcements, and the potentially more imminent rise in short-term interest rates. Both our Rating and Sector Outlook is Stable for 2015.

Suppliers' leverage profiles are entering uncharted territory following the recent period of consolidation. Still, the Las Vegas Strip remains a bright spot as does Macau despite significant near-term challenges in that region.

We forecast Atlantic City gaming revenues to contract 8% in 2014 to roughly $2.6 billion with further contraction of 6% in 2015 to about $2.5 billion. Our forecast assumes that the Trump Taj Mahal remains open and that remaining operating casinos capture about 60% of casino revenues from the four casinos that closed in 2014. If Trump Taj Mahal does close, we expect 2015 revenues will be closer to a range of $2.3 billion-$2.4 billion.

Atlantic City's revenues could migrate toward $2 billion as competition in the Northeast ramps up. Pennsylvania gaming regulators awarded a second casino in Philadelphia, New York is about to award four licenses, and three casinos are under development in Massachusetts with another one in Maryland. New Jersey may consider legalizing gaming outside of Atlantic City, although such a measure is at least a few years away from materializing.

While the headline revenue declines are concerning for Macau, we are encouraged by the fact that the medium-to-longer term fundamentals for the higher margin, lower volatility mass business remain intact. We expect the aggregate revenues to resume growth by the second-half 2015 when the Galaxy and Melco projects open and the negative trends that began this past summer are lapped. For 2015, we forecast negative 4% revenue growth. Macau is an important market for MGM Resorts International, Las Vegas Sands, and Wynn Resorts.

We are positive on the Las Vegas Strip. Fitch projects that the market will manage mid- or single-digit RevPAR and low single-digit gaming revenue and visitation growth over the next 2-3 years. Air capacity increases will further support visitation growth. McCarran International Airport's flight capacity measured by seats for February 2015 is up 3.2% relative to the same period in 2014.