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
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).