In a recent strategic financial move, MGM Resorts (MGM) successfully raised $750 million with the issuance of senior notes. These notes, which were issued at par, carry a 6.500% interest rate and mature in 2032. The proceeds gathered from this offering will be primarily directed towards the repayment of the company’s existing debt, specifically targeting the 6.750% senior notes due for repayment in 2025.
In addition to debt repayment, the gaming and hospitality giant indicated that it might allocate a portion of the net gains from this transaction into short-term investments that are interest-bearing, such as accounts, securities, or similar ventures.
Investors are offered a certain degree of security with senior notes, as they tower over other forms of debt in the prioritization ladder when it comes to bankruptcy scenarios. Due to this preferential standing, senior notes are generally accompanied by lower interest payments than their bond counterparts because they imply a reduced risk factor.
The newly offered notes will stand as general unsecured senior obligations for MGM Resorts. This essentially means that should the company face liquidation, the investors holding these notes might not fully recover their invested principal along with the accrued interest.
When it comes to assessing the creditworthiness of an issuing entity like MGM, agencies like Fitch Ratings come into play. Fitch, one of the globally recognized “big three” credit rating agencies along with Moody’s and Standard & Poor’s, assigned a ‘BB-‘ rating to MGM’s senior unsecured notes with an ‘RR4’ Recovery Rating, reflecting a stable fiscal forecast for the company.
Fitch’s ratings mirror MGM’s credit story, citing a leverage that hovers around the mid-5x EBITDAR marker. This level, according to Fitch, is well-aligned with MGM’s reputation for adopting a conservative approach to its financial policies, maintaining a strong liquidity status, thereby reinforcing the company’s established presence and diversification in its operations across Las Vegas and various regional markets.
MGM Resorts showcased a notable revenue upsurge in the 2023 financial year, recording a year-on-year increase, spurred by its operations in China and Las Vegas that delivered unprecedented performances.
For the year ended 2023, MGM reported group revenue rising to $16.20 billion, marking an increase of 23.7% compared to the previous term. The Las Vegas market continued to be a significant contributor to this growth, registering a 4.8% increase in revenue. Spearheading this surge was the acquisition of The Cosmopolitan in May 2022, coupled with the allure of major events, such as the Formula One race hosted in November 2023.
Conversely, MGM China outshone with the highest growth rate, a rebound attributed to the lifting of all COVID-19 restrictions that had previously dampened performance in 2022. Although a slight downturn was observed in its Regional Operations, the “management and other operations” sector, featuring BetMGM―a joint venture with Entain which reached its full-year objectives and expanded beyond the U.S.―aided in offsetting the decline.
The overall adjusted EBITDAR at MGM climaxed at $4.59 billion, which saw the company’s operating profits escalate by 31.4%, reaching $1.89 billion.
MGM isn’t resting on its laurels and has aggressive expansion plans for 2024. Among the anticipated developments is the transformation of the Empire City Casino in New York into a full-scale commercial casino, complete with a BetMGM Sportsbook and Lounge, along with upcoming restaurant and entertainment venues. However, the fruition of this vision is contingent upon MGM winning one of the three coveted full commercial casino licenses in New York. The proposal submissions and decision-making are expected sometime within the year.
On the international front, MGM’s plans cast further into Osaka, Japan, where the company, in partnership with Orix Corporation, has received final approval for an integrated casino resort, with groundbreaking projected for 2025 and a grand opening envisioned for 2030.
As MGM Resorts advances with its refinancing and strategic growth initiatives, it continues to solidify its footprint in the global leisure and entertainment landscape, betting on the long game with these recent financial maneuvers and ambitious expansion projects.
