Moody’s Buyers Service has trimmed MGM Resorts Worldwide’s (NYSE:MGM) credit standing to “B1” from “Ba3,” transferring the on line casino operator’s grade one notch additional into non-investment grade territory.
The MGM lion at MGM Grand on the Las Vegas Strip, seen above. Moody’s lowered the operator’s credit standing. (Picture: Nevada Unbiased)
Amongst different points, Moody’s cites ongoing weak point in Macau as one of many causes for the downgrade. MGM owns virtually 56 % of MGM China.
The downgrade displays the sluggish restoration in Macau and the excessive leverage degree the corporate is anticipated to hold following various offers accomplished or to be accomplished quickly,” mentioned Moody’s.
The rankings company referred to as on MGM arrived simply days after Morgan Stanley expressed concern in regards to the money burn charges of 5 of the six Macau concessionaires. Sands China and MGM China have about three-quarters (9 months) value of money to outlive at present burn charges.
Nevertheless, the Las Vegas-based firm has $4.8 billion in money and a $1.67 billion undrawn credit score revolver as of 2021, whereas the Macau operator has whole liquidity of $1.68 billion.
Moody’s Questions MGM Transactions
Whereas MGM has one of many strongest stability sheets within the gaming trade, and Wall Avenue largely praises the corporate’s asset-lite mannequin, Moody’s voices issues about among the firm’s transactions.
These embrace the operator’s $2.12 billion buy of a 50% curiosity in CityCenter, the $1.6 billion acquisition of Cosmopolitan’s on line casino and lodge working rights, and the divestment of MGM Progress Properties (NYSE:MGP) to VICI Properties (NYSE:VICI).
Whereas Moody’s highlights vibrancy in Las Vegas and MGM’s regional portfolio, the analysis agency notes earnings from these sources received’t be sufficient to offset rising leverage.
“Nevertheless, the earnings will not be sufficient to offset Moody’s view that the deliberate transactions are leveraging, and that MGM will keep leverage considerably above pre-pandemic ranges,” notes Moody’s. “Leverage is anticipated to be maintained over 7x debt-to-EBITDA in 2023, above our 6x downgrade threshold degree.”
MGM Not the Solely One
Macau performing as a thorn within the facet of gaming operators has been nothing new because the begin of the coronavirus pandemic.
The gaming sector has been one of many sectors most importantly affected by the shock given its sensitivity to client demand and sentiment,” provides Moody’s. “Extra particularly, MGM stays weak to a renewed unfold of the outbreak. MGM additionally stays uncovered to discretionary client spending that go away it weak to shifts in market sentiment in these unprecedented working situations.”
To be truthful to the Bellagio operator, it’s not the one on line casino large to lately endure a credit score downgrade. In February, Normal & Poor’s (S&P) stripped Las Vegas Sands (NYSE:LVS) of an investment-grade ranking, citing Macau woes.
Sands was lowered by S&P to “BB+,”or one notch into junk territory, from “BBB-,“ with a detrimental outlook.
“We’re keen to look out to 2023 for LVS to revive credit score measures due to the corporate’s high-quality asset portfolio and our perception that its gaming markets and property will ultimately get better together with leisure, enterprise, and group journey,” mentioned S&P in its report on Sands.
