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Rating Action:

Moody's places MGM Resorts B2 CFR on review for upgrade

30 Oct 2015

New York, October 30, 2015 -- Moody's Investors Service today placed the ratings of MGM Resorts International (MGM) on review for upgrade following the company's announcement that it will create a majority-owned real estate investment trust (REIT) to be named MGM Growth Properties, LLC (MGP).

"The review for upgrade is based on our view that the creation of a REIT will enhance MGM's ability to reduce its leverage and further ease its debt maturity profile, two factors that have historically been a limiting factor with respect to the company achieving a higher rating," stated Keith Foley, a Senior Vice President at Moody's.

"So far, very little in the way of specifics regarding the REIT proposal were released by MGM. However, in concept, Moody's believes the REIT structure can provide MGM with the financial and operational benefits that will support a B1 Corporate Family Rating, as well as improve MGM's credit profile over the longer-term," added Foley.

Ratings placed on review for upgrade:

MGM Resorts International

Corporate Family Rating -- B2

Probability of Default Rating -- B2-PD

$1.2 billion revolver due 2017 -- Ba2 (LGD2)

$1.03 billion term loan A due 2017 -- Ba2 (LGD2)

$1.71 billion term loan B due 2019 -- Ba2 (LGD2)

$242.9 million 6.875% senior notes due 2016 -- B3 (LGD 4)

$732.7 million 7.5% senior notes due 2016 - B3 (LGD 4)

$500 million 10% senior notes due 2016 -- B3 (LGD4)

$743 million 7.625% senior notes due 2017 - B3 (LGD 4)

$475 million 11.375% senior notes due 2018 - B3 (LGD 4)

$850 million 8.625% senior notes due 2019 - B3 (LGD 4)

$500 million 5.25% senior notes due 2020 - B3 (LGD 4)

$1.0 billion 6.75% senior notes 2020 - B3 (LGD 4)

$1.25 billion 6.625% senior notes due 2021 - B3 (LGD 4)

$1.0 billion 7.75% senior notes due 2022 - B3 (LGD 4)

$1.25 billion 6.00% senior notes due 2023 - B3 (LGD 4)

Mandalay Resort Group (Assumed by MGM Resorts International)

$0.4 million debentures due 2033 -- B3 (LGD4)

RATINGS RATIONALE

According to the MGM's announcement, the company's REIT proposal involves the contribution of the real estate associated with ten of its properties along with a debt and equity capital raise at MGP that will be used to refinance approximately $4 billion of MGM's existing debt. MGM expects to complete the transaction in the first quarter of 2016.

Moody's review will consider the specifics of the planned REIT structure as they become available, with a particular focus on how it will enhance the company's ability to facilitate debt reduction going forward, particularly in light of its significant debt-financed development activity over the next few years.

Moody's calculation of MGM's debt/EBITDA for the latest 12-month period ended September 30, 2015 was about 5.8 times. This calculation includes 100% of the debt and EBITDA of MGM's wholly-owned assets as well as 100% of the debt and EBITDA of the company's China subsidiary. The EBITDA portion of this calculation also includes the cash distributions received from the company's joint ventures which is reported in the operating activities section of MGM's consolidated statement of cash flows. It does not, however, include amounts reported as distributions from unconsolidated affiliates in excess of cumulative earnings which is reported in the investing activities section of MGM's consolidated statement of cash flows. Any upgrade would require confidence on Moody's part that MGM can achieve and maintain debt/EBITDA on this basis closer to 5.0 times over the longer-term.

Moody's decision to place MGM on review for possible upgrade considers that the company's leverage would not likely improve immediately as a result of the creation of a REIT. The proposed REIT transaction would result in the transfer of about $4 billion of existing MGM debt to MGP. However, Moody's would consider the present value of the REIT-related lease payments to MGP from MGM as the equivalent of debt. As a result, Moody's does not expect that the proposed REIT transaction would result in any immediate or significant improvement in MGM's leverage on a pro forma basis. For analysis purposes, Moody's capitalize operating leases at the greater of (a) the net present value of the minimum contractual operating lease payments or (b) for gaming companies, 4 times historical rent. Until the specific lease terms become available and are reviewed, the debt equivalent of lease payments cannot be determined.

Under MGM's REIT proposal, the company will contribute the real estate of seven of the its Las Vegas resorts and entertainment properties, including Mandalay Bay, The Mirage, Monte Carlo, New York-New York, Luxor, Excalibur, and The Park, along with three regional casino resort properties, including MGM Grand Detroit in Michigan and Beau Rivage and Gold Strike Tunica, both of which are located in Mississippi. MGM will lease these properties under a long-term, triple-net master lease with an initial 10-year term and four five-year extensions at MGM's option. The master lease is expected to provide MGP with a right of first offer with respect to MGM's development properties in Maryland and Massachusetts.

MGM will continue to manage and operate the properties and will retain 100% ownership of the Bellagio and MGM Grand Las Vegas. In addition, MGM will continue to own Circus Las Vegas, undeveloped land holdings, and its equity interests in CityCenter (50%), MGM China Holdings (51%), Borgata Hotel Casino & Spa (50%), Grand Victoria (50%), Las Vegas Arena (50%) and Diaoyutai MGM Hospitality (49%).

MGM operates a portfolio of destination resorts located on the Las Vegas Strip in Nevada. The company is in the process of developing MGM National Harbor in Maryland and MGM Springfield in Massachusetts. MGM also owns 51 percent of MGM China Holdings Limited, which owns the MGM Macau resort and casino and is developing a gaming resort in Cotai, and 50 percent of CityCenter in Las Vegas. Consolidated net revenue for the 12-month period ended September 30, 2015 was about $9.4 billion.

The principal methodology used in these ratings was Global Gaming Industry published in June 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Hofferber, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places MGM Resorts B2 CFR on review for upgrade
No Related Data.
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