Fitch Rates MGM's Proposed Sr. Notes 'B/RR4'; Upgrades MGM's IDR to 'B' and
Grand Paradise to 'BB-'
NEW YORK -- December 06, 2012
Fitch rates the proposed $1 billion in senior unsecured notes due 2021 being
issued by MGM Resorts International (MGM) 'B/RR4'. Fitch also upgrades MGM's
Issuer Default Rating (IDR) to 'B' from 'B-' and MGM Grand Paradise's IDR to
'BB-' from 'B+'. Fitch also upgrades various tranches of debt issued by MGM
and MGM Grand Paradise, including $8.8 billion in outstanding senior unsecured
notes at MGM and the $2 billion credit facility at MGM Grand Paradise. A full
list of rating actions is listed at the end of this release. The Rating
Outlook remains Positive.
MGM announced a new senior secured credit facility comprised of $2.75 billion
in term loans and up to $1.25 billion in revolver capacity. Fitch expects to
rate the facility 'BB/RR1' closer to the time of the facility being finalized
with the 'BB/RR1' rating being predicated on the assumption that a majority of
the collateral supporting the senior secured notes (being redeemed as part of
this transaction) will be granted to the lenders. The proceeds from the notes
along with approximately $3 billion in proceeds from a new credit facility and
$800 million in cash on hand will be used to tender for MGM's senior secured
notes ($3.095 billion outstanding plus $450 million in anticipated redemption
premium payments and fees) and to repay approximately $1.27 billion
outstanding on existing credit facility.
The upgrade of the IDR to 'B' reflects the anticipated interest cost savings
resulting from this transaction, which Fitch estimates at around $200 million
annually. The upgrade also takes into account improved pro forma liquidity and
slightly reduced gross leverage. The transaction addresses the largest
maturities through 2014, with only $1.2 billion remaining through that
timeframe. Assuming the revolver capacity at $1.25 billion, pro forma
available liquidity at the domestic restricted group will be considerable at
roughly $1.3 billion ($1 billion revolver availability plus $300 million in
excess cash assuming $400 million cage cash). The leverage reduction comes
from the net use of $350 million in cash to reduce debt after accounting for
redemption premiums and financing costs. Pro forma leverage using consolidated
EBITDA minus income attributable to minority interests in Macau is expected to
decline to 8.25x from 8.50x.
Free Cash Flow
Interest cost savings will be a result of refinancing the high coupon senior
secured notes with a weighted average coupon rate of 10.8% with lower interest
bank debt, cash and the proposed senior note issuance. Fitch also expects
reduced pricing on the new credit facility since the lenders will benefit from
a more meaningful collateral package (the existing facility is partially
collateralized). Fitch anticipated these cost savings when it revised MGM's
Rating Outlook to Positive in October 2012.
Taking into account the proposed transactions, Fitch now expects the domestic
group's 2013 free cash flow (FCF) to be around $200 million as opposed to
expectation of breakeven FCF at the time of the Outlook revision. For 2014,
Fitch now projects roughly $250 million in FCF relative to the prior forecast
of $200 million. The smaller difference reflects that some of the senior
secured note refinanacings were expected to be realized around late 2013/2014
The FCF profile of the domestic group will be further bolstered by dividends
from Macau (MGM owns 51% of MGM China). MGM's share of Macau dividends is
projected to be $200 million - $250 million per year as the Macau subsidiary
with $678 million in latest 12 months (LTM) EBITDA is expected to retain ample
flexibility to pay dividends.
MGM Grand Paradise
The upgrade of MGM Grand Paradise reflects the improved credit profile of
MGM's main credit group. Fitch has before stated that MGM Grand Paradise's
stand-alone IDR is closer to the 'BB' category IDR and maintained a lower
rating on the Macau subsidiary to reflect MGM's weaker credit profile and
control over the subsidiary.
As of Sept. 30, 2012, MGM Grand Paradise's LTM EBITDA was $678 and outstanding
amount on its new credit facility was $539 million resulting in a gross
leverage of 0.8x. Fitch expects leverage to remain below 3x as MGM Grand
Paradise develops its $2.5 billion casino resort on Cotai.
What Could Trigger a Ratings Change
The Positive Outlook reflects good likelihood of Fitch upgrading MGM's IDR to
'B+' within a 12-24 month timeframe. This expectation takes into account MGM's
expressed interest and perceived ability to strengthen its balance sheet and
Fitch's favorable outlook for the Las Vegas Strip and Macau.
The following drivers could lead to an upgrade of MGM's IDR to 'B+':
--Consolidated leverage adjusted for Macau minority interest moving towards 7x
--Domestic credit group generating discretionary FCF of at least $200 million;
--MGM addressing its 2015 maturities.
The following drivers could lead to a revision of the Outlook to Stable or
--Consolidated leverage adjusted for Macau minority interest migrating above
8.5x for an extended period of time; and/or
--Domestic group generating discretionary FCF remaining roughly breakeven.
Fitch takes the following rating actions:
MGM Resorts International
--IDR upgraded to 'B' from 'B-';
--Senior secured notes due 2013, 2014, 2017, and 2020 upgraded to 'BB/RR1'
--Senior credit facility upgraded to 'B+/RR3' from 'B/RR3';
--Senior unsecured notes upgraded to 'B/RR4' from 'B-/RR4';
--Convertible senior notes due 2015 upgraded to 'B/RR4' from 'B-/RR4';
--Senior subordinated notes upgraded to 'CCC+/RR6' from 'CCC/RR6'.
MGM China Holdings, Ltd and MGM Grand Paradise S. A. (co-borrowers)
--IDRs upgraded to 'BB-' from 'B+';
--Senior secured credit facility upgraded to 'BB+' from 'BB/RR2' (includes
$1.45 billion revolver and $550 million term loan).
Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
Applicable Criteria and Related Research:
--'Fitch Revises Outlook on MGM Resorts and MGM Grand Paradise to Positive;
Affirms All Ratings' (Oct. 11, 2012);
--'U.S. Leveraged Finance Spotlight -- MGM Resorts International' (Feb. 1,
--'U.S. Gaming Recovery Models -- Second-Quarter 2012' (Sept. 12, 2012);
--'Fitch 50 -- Structural Profiles of 50 Leveraged Credits - Amended' (July
--'2012 Outlook: Gaming - Market Exposure the Differentiating Factor' (Dec.
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012)';
--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers'
(Nov. 13, 2012);
--'Country-Specific Treatment of Recovery Ratings' (June 15, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
2012 Outlook: Gaming -- Market Exposure the Differentiating Factor
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Country-Specific Treatment of Recovery Ratings
U.S. Leveraged Finance Spotlight -- MGM Resorts International
U.S. Gaming Recovery Models -- Second Quarter 2012
Fitch 50 -- Structural Profiles of 50 Leveraged Credits - Amended
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