Analysts look favorably on MGM Resorts financing deal
14 September 2012
14 Sept. 2012 4:14 p.m.
A new financing deal by MGM Resorts International is a positive for the casino-resort company, analysts said Friday.
Las Vegas-based MGM Resorts revealed Friday afternoon it plans to sell $1 billion in senior notes due 2020, up from $700 million announced earlier in the day. A portion of the proceeds will pay off current debt, the company said.
The notes were priced at 6.75 percent, MGM Resorts said.
In assigning a "B3" rating to the notes, the debt-rater Moody's Investors Service in New York affirmed the company's main "B2" Corporate Family and Probability of Default ratings. These overall ratings cover the company's ability to service some $10 billion of rated debt. The ratings are in the speculative range, which is common for the gaming industry.
Even as it faces a hefty overall debt load of $13.2 billion, MGM Resorts has been posting better financial results.
That's because of its Macau resort in China and improved business conditions on the Las Vegas Strip including at its half-owned $8.5 billion CityCenter resort complex. Visitors paid higher room rates at several of its big resorts in the second quarter thanks to improvements in demand for those rooms.
"MGM's proposed note offering is another positive step towards refinancing its considerable debt maturities in the next two years," Peggy Holloway, Moody's vice president and senior credit officer, said in a statement.
"The affirmation of MGM's B2 Corporate Family Rating reflects MGM's improving liquidity position and Moody's view that slowly improving trends in visitation, room rates, and gaming in Las Vegas will continue into 2013 and help improve MGM's leverage and (debt) coverage metrics, albeit modestly," Moody's said in a report on the planned debt issuance.
Standard & Poor's in New York similarly assigned its "B-"" rating to the new debt and said its rating outlook on MGM Resorts is positive.
"The positive rating outlook reflects gradually improving, although still weak, credit measures and our expectation that the company will maintain access to the capital markets to address intermediate-term debt maturities," S&P said in its report posted on the Reuters website.
Union Gaming Group noted MGM Resorts in March had sold $1 billion of notes due 2022. They were issued at 7.75 percent.
MGM Resorts was poised to take advantage of "improved credit market conditions and the shorter maturity," Union Gaming said.
"We view today’s news as a positive given the company continues to shore up the balance sheet with long-dated notes and is able to opportunistically access the capital markets in favorable fashion while increasing liquidity," Union Gaming commented on the new notes.
Fitch Ratings, in the meantime, assigned a "B-/RR4" rating to the new notes.
Fitch analysts noted MGM Resorts is a big operator on the Las Vegas Strip and Fitch "believes the fundamental outlook for the Strip remains among the safest markets in the U.S. for the balance of 2012 and 2013, supported by minimal (hotel room) supply growth."
Fitch expects a 2 percent increase in Strip visitation growth this year and growth in Strip gaming revenue of 2 to 3 percent.
It expects a similar performance by the Strip in 2013.
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