MGM Resorts ends third quarter with $1.1 billion of revolver liquidity

By Paul Deckelman

New York, Oct. 31 - MGM Resorts International ended the 2013 third quarter with $1.1 billion of borrowing availability under its revolving credit facility and a $1.4 billion cash balance - although most of the latter was offshore at its Chinese joint venture.

The Las Vegas-based casino giant's chairman and chief executive officer, James J. Murren, told analysts on the conference call following the release of financial results for the quarter ended Sept. 30 that "it was a busy and, I'm pleased to say, very productive quarter for us at MGM Resorts. Our margins are improving, we've kept a good eye on our costs, [and] the property investments are yielding good returns on investment. We're planting seeds to grow this company further, as we have consistently and determinedly reduced our leverage, improved our balance sheet, and we're happy with our progress thus far."

MGM's executive vice president, chief financial officer and treasurer, Daniel J. D'Arrigo, said that of the $1.4 billion of cash, about $925 million was at its 50%-owned MGM China Holdings, Ltd., which runs its lucrative casino in the Macau gambling enclave. The remaining more than $400 million of cash was at the parent company level.

The Chinese entity also had $1.45 billion of borrowing availability under its own revolver, which is separate from the parent company's.

CityCenter deal cuts interest

D'Arrigo noted that earlier in the month, MGM successfully refinanced the outstanding debt of another joint venture, its ambitious CityCenter gaming, luxury housing, retail and entertainment complex. It is located on the famed Las Vegas Strip near many of the company's famous wholly owned casino resorts such as the Bellagio, the Mirage, the MGM Grand, the Mandalay Bay, Circus Circus and New York-New York. MGM built CityCenter as a 50-50 joint venture with a subsidiary of Dubai World, the state-owned investment company of the oil-rich Middle Eastern emirate of Dubai.

MGM announced on Oct. 16 that CityCenter Holdings, LLC had closed on $1.775 billion of new senior secured credit facilities, comprised of a $75 million revolver that matures in October 2018 and a $1.7 billion term loan B facility maturing in October 2020. The term loan B facility, which was issued at 99% of the principal amount, will bear interest at 400 basis points over Libor, with a 1% Libor floor.

Concurrently with closing the new credit facilities, CityCenter Holdings called all of its $1.14 billion of outstanding 7 5/8% senior secured first-lien notes due 2016 and its $600 million of 10¾% senior secured second-lien PIK toggle notes due 2017; the notes will be redeemed on Nov. 14 using funds from the new term loan facility.

The new CityCenter revolver facility was undrawn at closing and is expected to be used for general corporate purposes.

D'Arrigo said that the CityCenter transaction "significantly reduces our cash interest expense by roughly $80 million and increases CityCenter's financial flexibility and extends their maturity profile."

Earlier in the year, CityCenter sold a $240 million add-on tranche to its existing $900 million of 7 5/8% notes, pricing those bonds at 104.75 to yield 5.824% in a quick-to-market transaction on Feb. 13. Proceeds from that offer, along with cash on hand, were used to repay $300 million of the borrowings then outstanding under CityCenter's $375 million senior credit facility.

Debt burden improves

The third-quarter results showed MGM's consolidated long-term debt at about $13 billion, down from around $13.6 billion at the end of fiscal 2012 on Dec. 31 of last year. The CityCenter debt was not included in that tally, since the joint venture reports to the Securities and Exchange Commission separately.

According to MGM's most recent 10-Q filing with the SEC, which was filed after the end of the second quarter on June 30, that $13 billion debt load included $2.78 billion of senior credit facility term loan debt, about $553 million of term loan debt at MGM Grand Paradise, which does the borrowing for the Chinese joint venture, $1.45 billion of outstanding 4¼% senior convertible notes due 2015 and around $8.3 billion of various outstanding bond issues ranging in maturity from a $508 million issue of 5 7/8% notes due 2014 all the way up to a tranche of debentures repayable in 2096.

MGM meanwhile came into the new year fresh off having done a $1.25 billion bond deal last December and having entered into a new $4 billion credit facility - a $1.05 billion term loan A tranche, $1.75 billion of term loan B debt and a $1.2 billion revolver. It used the proceeds from those new deals, plus cash on hand, to fund a tender offer for its existing secured notes and prepay amounts outstanding under its then-existing senior secured credit facility.

With those big deals out of the way - Murren at the time called the bank debt and bond deals "a transformational refinancing for MGM Resorts International" - the company was pretty quiet for most of this year, debt market-wise, even while CityCenter was pricing its new deal. Its only junk bond market activity was the repayment of $463 million of 6¾% senior notes when they came due in April.

In the bank loan market, it made an abortive February attempt to reprice the new term loan B downward by 50 bps, to 275 bps over Libor plus a 1% Libor floor, from the original 325 bps over plus 1%, ultimately withdrawing the proposal - but it came back again in early May, when the debt markets were at their strongest levels of the year, and managed to get even better terms from the lenders. They finally agreed to whittle the interest rate on that $1.75 billion tranche down to 250 bps over Libor with a 1% Libor floor.

CEO Murren said that MGM Resorts "remains focused on executing on the strategies we've laid out, both in terms of our operation strategies to drive margins and our capital strategies to improve our properties, doing so with the lens of always looking toward improving our balance sheet [and] continuing to get stronger financially."

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