MGM Plans $750 Million in Bonds as Some Refuse Extension

MGM Resorts International got its lowest interest rate on unsecured notes in almost five years with a boosted $1 billion bond offering, highlighting the recovery of the biggest casino operator on the Las Vegas Strip.

MGM’s 7.75 percent, 10-year notes, sold today at 5.47 percentage points above similar-maturity Treasuries, were up from the $750 million the company had sought, according to data compiled by Bloomberg. That’s the lowest on unsecured debt from the company since May 2007.

Standard & Poor’s revised its outlook on MGM, rated B-, to “positive” today, citing growth trends in Las Vegas and reduced refinancing risk. That’s improved from as low as CCC in the first half of 2009. The company sold $850 million of 8.625 percent, seven-year notes in January at the lowest unsecured interest rate it obtained since before the economic downturn, Dan D’Arrigo, MGM’s chief financial officer and treasurer, said in a Feb. 22 conference call.

MGM’s average borrowing cost on outstanding debt is 8 percent, “so for every 1 percent improvement in rate that we can achieve, that’s an incremental $125 million in interest rate and incremental free cash flow to our company,” he said. “As we go forward, we believe there will be more opportunities to further reduce these borrowing costs and improve our overall free cash flow.”

March 2010 Sale

Despite the longer maturity on today’s note, the coupon is lower than the notes issued in January, Bloomberg data show. In May 2007, the Las Vegas-based company sold 7.5 percent debt due in June 2016, the data show.

Speculative-grade yields tumbled to 7.6 percent as of yesterday from as high as 10.2 percent in October, according to Bank of America Merrill Lynch index data.

The debt will help pay $965 million owed to term loan lenders as of March 14 that refused to extend commitments as well as to pay back other outstanding borrowings, MGM said in a statement today.

The company extended the maturity on $1.8 billion of loans to February 2015 while $1.3 billion remains due in February 2014, MGM said in a Feb. 27 regulatory filing.

MGM sold 10-year notes in March 2010, issuing $845 million of 9 percent senior secured debt at a yield of 5.29 percentage points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The securities traded at 111.75 cents on the dollar to yield 7 percent as of March 9, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

‘Constant Issuer’

The casino operator will “need to be a constant issuer” in the debt market as it faces $8.5 billion of maturities in the next four years, CreditSights Inc. analysts wrote in a March 6 research note.

About 62 percent of holders of MGM’s $3.5 billion credit facility agreed to push out the due date to Feb. 23, 2015, from Feb. 21, 2014, the company said in the filing last month. Lenders that extended can receive a 20 percent reduction in their credit exposure, according to the filing.

The company’s bonds issued in January were boosted from a planned $500 million bond sale to $850 million based on demand, D’Arrigo said in the conference call last month.

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