Robert LaFleur Comments: MGM Resorts International Seeks $5.25 Billion To Refinance

December 7, 2012, Bloomberg News

MGM Resorts International (MGM) is seeking $4 billion in loans and today sold $1.25 billion of senior notes as the biggest casino operator on the Las Vegas Strip works to refinance its outstanding obligations. Its stock surged.

The company issued 6.625 percent bonds maturing in December 2021 that pay 525 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds will help fund the repurchase of senior secured debt and refinance its existing senior credit facility, Las Vegas-based MGM said today in a regulatory filing. MGM, which began a tender offer for about $3.1 billion of outstanding secured debt, will also meet with lenders tomorrow to discuss the loans, according to a person with knowledge of the transaction.

MGM shares increased 10 percent, the most since Aug. 24, 2011, to $10.97 in New York trading. Swaps linked to its debt declined 36.9 basis points to 565.6 as of 4:30 p.m., the lowest level since 2008, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The transaction will reduce MGM’s interest burden by trimming high-coupon debt and improve its ability to generate cash, according to report from Standard & Poor’s, which today boosted the company’s credit rating to B+, four levels below investment grade.

“It’s very important for the company,” said John Kempf, an analyst with RBC Capital Markets LLC. “They’re able to refinance and generate free cash flow.”

The loan financing will consist of a $1.5 billion term portion B, a $1.25 billion term loan A and $1.25 billion revolving line of credit, said the person, who asked not to be identified because the information is private.

“They’re taking out very high-priced debt taken on at the peak of the financial crisis and refinancing at much lower cost,” said Robert LaFleur, a gaming analyst with Cantor Fitzgerald & Co. “It’s pretty significant.”

MGM had about $12 billion of bonds outstanding before today’s sale, $4.9 billion of which come due before 2016, Bloomberg data show. The securities had an average maturity of 4.3 years and paid an 8 percent coupon.

“The proposed transaction will allow us to significantly lower our cost of borrowing while enhancing our maturity profile,” Alan Feldman, an MGM spokesman, said in an e-mail.

The seven-year term loan B portion will be covenant-lite, meaning the debt won’t carry typical lender protections such as financial-maintenance requirements. Lenders will also be offered one-year of soft-call protection of 101 cents, meaning the company would have to pay 1 cent more than face value to refinance the debt during the first year, the person said.

Bank of America Corp., Deutsche Bank AG, Barclays Plc and JPMorgan Chase & Co. are arranging the loans, said the person.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.