TEXT - Fitch rates MGM Resort International new credit facility
Jan 3 - 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 notes' indentures. 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 or lower; --Domestic credit group generating discretionary FCF of at least $200 million; and/or --MGM addressing its 2015 maturities. The following drivers could lead to a revision of the Outlook to Stable or Negative: --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).