MGM Resorts to sell $750 million in debt to pay off debt issuance in 2025
MGM Resorts International (NYSE: MGM ) announced today that it will sell $750 million in corporate bonds to fund debt repayments due next year.
Bellagio operator announced it will sell $750 million of commercial paper due 2032, the proceeds of which will be used to purchase outstanding 6.750% senior notes due 2025. If capital remains, it is used for general corporate purposes or deposited into an interest-bearing account.
The notes issued this time will be the company's general unsecured senior debt, substantially guaranteed by all domestic wholly-owned subsidiaries that guarantee the company's other senior debt, and will be equal in rights to all existing or future senior unsecured debt. The Las Vegas-based casino operator said in a statement:
MGM ended 2023 with $2.92 billion in cash and cash equivalents and $6.34 billion in long-term debt. MGM's 2023 free cash flow is $1.8 billion.
MGM debt sale positive sign
In the statement announcing the bond issuance, MGM did not mention the interest rate that would be attached to the newly issued bonds, but based on the issuer's credit rating, the coupon rate is expected to be higher than the interest rate on the newly issued bonds. Investors purchase investment-grade corporate bonds.
Coupled with MGM's growing free cash flow and the operator's rich assets, the new product could prove attractive to fixed-income market participants. There is another reason why the bond issuance is viewed as a positive. It signals to bondholders that gaming companies - even those with heavy debt loads - can maintain stable access to debt markets despite high interest rates.
It's common for companies in a variety of industries, including casino gambling, to use new debt to pay down short-term bonds. Such measures are generally viewed positively as they extend the maturity of the issuer while potentially reducing leverage.
"Deutsche Bank Securities, BofA Securities, Barclays Capital, BNP Paribas, Citigroup Global Markets, 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 serve as joint book-running managers, with Goldman Sachs & Co. LLC, PNC Capital Markets LLC, us. Bancorp Investments, Inc. and Wells Fargo Securities, LLC will serve as co-manager of the proposed offering,” MGM said.
Bond market opens to gambling companies
While U.S. interest rates are at their highest in two decades and the Federal Reserve has not made clear when it will cut borrowing costs, debt markets are open for gambling companies as some have issued new commercial paper since the start of 2023.
The same goes for early 2024. An example from previous MGM news: Rival Caesars Entertainment Inc. (NASDAQ: CZR ) sold $1.5 billion in notes with maturities that extend to 2032 in January.
The likelihood that the Fed will cut interest rates multiple times before the end of 2024 could provide upside potential for bonds issued before the rate cuts, including MGM.
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Source: www.casino.org
