Fitch Rates MGM Resorts' New $4B Credit Facility 'BB/RR1'; Affirms IDR at
NEW YORK -- January 3, 2013
Fitch Ratings assigns a 'BB/RR1' rating to MGM Resort International's (MGM)
new $4 billion credit facility. Fitch also affirms MGM's Issuer Default Rating
(IDR) at 'B'. In addition, Fitch affirms all of MGM's related issuers and
transactions. A full list of ratings follows at the end of this press release.
The Rating Outlook is Positive.
The credit facility is comprised of a $1.2 billion revolver, $1.05 billion
term loan A and $1.75 billion term loan B. The revolver and term loan A will
mature in December 2017 and pays LIBOR plus 3%. Term loan B matures in
December 2019 and pays LIBOR (with 1% floor) plus 3.25%. Term loan B was
issued with a discount of 99.5%.
The 'BB/RR1' rating on the new credit facility reflects Fitch's calculation of
91% or better recovery prospects for the lenders in an event of default. The
facility is secured by MGM's Bellagio, Mirage and MGM Grand (together
Principal Properties), which secure up to $3.35 billion in claims. New
York-New York in Las Vegas and Gold Strike in Tunica, MS were also provided as
collateral for the facility. MGM Grand Detroit is a co-borrower and secures
the facility up to $450 million.
The Principal Properties and New York-New York were previously pledged to the
secured notes that are being redeemed as part of MGM's global refinance
transaction announced Dec. 6th, 2012. According to the company's Dec. 20th
filing, MGM satisfied and discharged its obligations under the secured notes'
indentures and all of the collateral securing these notes was released.
Note that MGM's ability to grant liens is limited by a 15% Consolidated Net
Tangible Assets carveout provision that is included in the senior unsecured
The new credit agreement has more lenient covenants than the prior agreements,
allowing more flexibility in terms of restricted payments, additional
borrowing and investments. Restricted payments are subject to a $100 million
plus 50% of cumulative net income basket. Net income may include MGM China
dividends to the extent MGM does not count these dividends for other baskets
(i.e. investments, capex and debt prepayment).
MGM's main financial covenant of minimum EBITDA was relaxed. New threshold for
quarter ending March 31, 2013 is $1 billion relative to $1.25 billion in the
prior agreement. The threshold steps up in increments of about $50 million
until reaching $1.35 billion for the period ending March 31, 2016. The credit
agreement's EBITDA definition is now clearer relative to prior agreements. The
definition excludes EBITDA of MGM China and CityCenter but includes
distributions from unconsolidated affiliates. Fitch estimates covenant EBITDA
for period ending Sept. 30, 2012 at roughly $1.17 billion.
Fitch upgraded MGM's IDR to 'B' from 'B-' following the Dec. 6th announcement
of the company's refinancing plan. At the time of the upgrade Fitch indicated
that it expects to rate the new credit 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 will be granted to the lenders.
The upgrade of the IDR reflected the anticipated interest cost savings
resulting from the transactions, which Fitch estimates at around $190 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 $1.1 billion remaining through that
timeframe. Pro forma available liquidity at the domestic restricted group is
now considerable at roughly $1.5 billion ($1.2 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.
WHAT COULD TRIGGER A RATING ACTION
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 affirmed at 'B';
--New senior secured credit facility rated 'BB/RR1';
--Senior secured notes due 2013, 2014, 2017, and 2020 'BB/RR1' withdrawn;
--Prior partially secured senior credit facility 'B+/RR3' withdrawn;
--Senior unsecured notes affirmed at 'B/RR4';
--Convertible senior notes due 2015 affirmed at 'B/RR4';
--Senior subordinated notes affirmed at 'CCC+/RR6'.
MGM China Holdings, Ltd and MGM Grand Paradise S. A. (co-borrowers)
--IDRs affirmed at 'BB-';
--Senior secured credit facility affirmed at 'BB+' (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 Rates MGM's Proposed Sr. Notes 'B/RR4'; Upgrades MGM's IDR to 'B' and
Grand Paradise to 'BB-'' (Dec. 6, 2012);
--'U.S. Leveraged Finance Spotlight -- MGM Resorts International' (Feb. 1,
--'U.S. Gaming Recovery Models -- Third-Quarter 2012' (Dec. 20, 2012);
--'2013 Outlook: U.S. Gaming (Return Generation in Full Swing)' (Dec. 17,
--'Fitch 50 -- Structural Profiles of 50 Leveraged Credits - Amended' (July
--'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:
U.S. Leveraged Finance Spotlight -- MGM Resorts International
U.S. Gaming Recovery Models -- Third-Quarter 2012
2013 Outlook: U.S. Gaming (Return Generation in Full Swing)
Fitch 50 -- Structural Profiles of 50 Leveraged Credits - Amended
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Country-Specific Treatment of Recovery Ratings
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Michael Paladino, CFA, +1-212-908-9113
One State Street Plaza
New York, NY 10004
Alex Bumazhny, CFA, +1-212-908-9179
Megan Neuburger, +1-212-908-0501
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