MGM Makes a Splash in Gaming

Debt offerings don't often do a lot to move the stock market. An offering here or there may be seen as a positive for the occasional company, but for the most part, debt is just part of doing business.

That's why MGM Resorts' (NYSE: MGM  ) jump of 10% yesterday was so interesting. The company only said that it was looking to tap the debt markets to pay off debt that would be coming due in the next couple of years. But investors looked at the lower interest payments that MGM will get out of the deal and jumped for joy.

Here's the deal
We know that MGM sold $1.25 billion of senior  notes due 2021 with a 6.625% coupon. The company is also reportedly looking to finance another $4 billion from loan financing that will be $1.25 billion in a five-year term loan A, $1.5 billion in seven-year term loan B, and a $1.25 billion revolving line of credit. Interest rates for these loans are not currently known.  

The company will use this money to buy back up to $4 billion of its senior secured notes. Here are the amounts outstanding, yield, maturity, and amount offered on these notes.

Maturity Date

Principal Amount

Coupon Yield

Offer per $1,000 bond

2013

$750 Million

13%

$1,110.84

2014

$650 Million

10.375%

$1,134.82

2017

$850 Million

11.125%

$1,097.66

2020

$845 Million

9%

$1,146.76

Source: Company press release. 

The goal of this reshuffling is to reduce interest payments, which you can see from the yields above are very high. The 6.625% coupon sold yesterday shows that the company's financial position has improved since these loans were taken out.

Is it time to buy?
This move, along with continued improvement in Las Vegas is making MGM an interesting play at the moment. Las Vegas Strip gaming revenue rose another 3.6% in October, and while the increase is nothing like Macau, it's steadily improving.

I haven't been a fan of MGM in the past, and I still think that its debt load of $13.5 billion is a concern, but this is really a leveraged play on a U.S. recovery with a little Macau exposure thrown in. Unlike Caesars Entertainment (NASDAQ: CZR  ) , I think MGM has a real possibility to dig itself out of this debt hole. With that said, Wynn Resorts (NASDAQ: WYNN  ) and Las Vegas Sands (NYSE: LVS  ) are still much safer plays because of their superior balance sheets, but for the gambling investor, MGM is becoming an interesting play. 


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