You owe what?
MGM had more than $13 billion in long-term debt at the end of last quarter, but the announcement of an equity offering, Macau IPO, and potential Borgata sale should provide some relief if proceeds are used to pay down debt. The table below shows where debt could stand once these transactions are closed.
|Initial Debt||$13.05 billion|
|- Stock Sale||$596 million|
|- Borgata Sale (including land)||$250 million|
|- Macau IPO||$250 million|
|Potential Debt Level||$11.95 billion|
Source: SEC filings.
There was also just more than $1 billion in cash on hand at the end of the quarter, so a net debt level close to $11 billion isn't out of the picture. The problem is this reduced debt comes with fewer assets to pay for the debt. Borgata and MGM Macau were two of MGM's best assets, so less debt is great, but it comes at a price.
The amount of debt may still be staggering, but the good news is there isn't a crunch of debt maturing in the next few years, so MGM has some wiggle room. The table below shows debt maturities of MGM's long-term debt. Considering that MGM generated $549.7 million in operating cash flow over the past 12 months and spent $122.4 million on capital expenditures during the same period, it is conceivable to expect more than $400 million in free cash flow even in these rough economic times. With cash on hand that's plenty to cover debt maturities for the next three years.
|Term and Revolving Loans||$3.01 billion|
|2011 Maturities||$454.5 million|
|2012 Maturities||$544.7 million|
|2013 Maturities||$1,348.4 million|
|2014 Maturities||$1,142.7 million|
|2015 and beyond Maturities||$6.55 billion|
Three years from now, conditions may get a little more dicey, but that is a long time in the casino business. We may have online gaming by then and Las Vegas may have recovered, which would leave MGM in a much better position.
MGM lives on
MGM isn't on the brink quite yet, but with such a focus in Las Vegas it is dependent on a strong U.S. recovery to turn around. You may want to look at operators like Ameristar Casinos
I like a good gamble, and I think it's clear MGM will survive for the foreseeable future, but I would like to see shares dip a little further before this Fool is willing to take a roll of the dice.
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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
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