Posted on: March 25, 2024, 03:52h.
Last updated on: March 25, 2024, 04:22h.
MGM Resorts International (NYSE: MGM) announced Monday that it will sell $750 million in corporate bonds to fund the retirement of debt coming due next year.
The Bellagio operator said it is marketing $750 million in commercial paper maturing in 2032, the proceeds of which will be used to retire its outstanding 6.75% senior notes due in 2025. If there’s capital left over, it will be used for general corporate purposes or deposited into interest-bearing accounts.
The notes being offered will be general unsecured senior obligations of the Company, guaranteed by substantially all of the Company’s wholly owned domestic subsidiaries that guarantee the Company’s other senior indebtedness, and equal in right of payment with all existing or future senior unsecured indebtedness of the Company and each guarantor,” according to a statement issued by the Las Vegas-based casino operator.
MGM concluded 2023 with $2.92 billion in cash and cash equivalents and long-term debt of $6.34 billion. MGM generated free cash flow of $1.8 billion in 2023.
MGM Debt Sale a Positive Sign
In the statement announcing the debt sale, MGM didn’t mention the interest rate that will be attached to the newly issued bonds, but owing to the issuer’s junk credit rating, it’s reasonable to expect the coupon will be above what investors get on investment-grade corporates.
That coupled with MGM’s increasing generation of free cash flow and the operator’s treasure trove of assets could make the new issue attractive to fixed-income market participants. The bond sale could be viewed in a positive light for another reason. It signals to bondholders that despite high interest rates, gaming companies — even those with large debt burdens — maintain solid access to debt markets.
It’s common for companies in a variety of industries, including casino gaming, to use new debt to retire bonds maturing over the near term. Such moves are typically viewed in a positive light because they extend the issuer’s maturity profile while potentially lowering leverage.
“Deutsche Bank Securities Inc., BofA Securities, Inc., Barclays Capital Inc., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Citizens JMP Securities, LLC, Fifth Third Securities, Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., and Truist Securities, Inc. will act as joint book-running managers and Goldman Sachs & Co. LLC, PNC Capital Markets LLC, U.S. Bancorp Investments, Inc., and Wells Fargo Securities, LLC will act as co-managers for the proposed offering,” according to MGM.
Bond Markets Open to Gaming Companies
While US interest rates are at the highest levels in two decades and the Federal Reserve hasn’t tipped its hand as to exactly when it will lower borrowing costs, debt markets are open to gaming companies, as several have issued new commercial paper since the start of 2023.
The same has proven true to start 2024. As just one example prior to the MGM news, rival Caesars Entertainment (NASDAQ: CZR) in January sold $1.5 billion in bonds maturing in 2032.
It’s possible the Federal Reserve will lower rates multiple times before the end of 2024, potentially providing upside to bonds, including MGM’s, issued before those rate cuts.
