Credit rating agency Fitch Ratings has assigned a ‘BB-‘ Long-Term Issuer Default Rating (IDR) with a stable outlook to MGM China and its parent company MGM Resorts International.
According to Fitch, the stable outlook reflects their expectation that MGM’s leverage will remain stable and that liquidity is sufficient to fund future growth opportunities.
Fitch has also assigned a ‘BB+’/’RR1’ rating to MGM International’s senior secured revolver, a ‘BB-‘/’RR4’ rating to its senior unsecured notes, and a ‘BB-‘/’RR4’ rating to MGM China’s unsecured revolvers and senior unsecured notes.
In a Monday update, the credit rating agency said that the assigned ratings reflected MGM’s mid-5x EBITDAR leverage that was commensurate with the rating, conservative financial policy, and robust liquidity position.
MGM has reduced its EBITDAR leverage from 8.4x in 2021 to 5.5x in 2023. The company’s EBITDA leverage, which excludes leases from debt, improved from 8.6x to 2.8x over the same period through the application of free cash flow (FCF) and asset sales proceeds to debt reduction.
Fitch noted that they did not expect further material debt reduction over the forecast horizon and projected EBITDAR leverage to stay in the 5.0x-5.5x range.
MGM’s future FCF generation and excess cash should allow for funding of future growth opportunities and share repurchases, according to the analysts.
The credit rating agency emphasised that the continued rebound in Macau for MGM properties should support further near-term growth.
MGM’s market share for the mass market has grown from 9 per cent to over 15 per cent in 2023, attributing to the addition of approximately 200 new tables under the concession and the continued ramp up of MGM Cotai.
Customer reinvestment rates increased in 2023 as more operators focused on the mass market given the decline in the VIP market, but MGM China’s EBITDAR margins have not seen a material impact.
In a Monday note, CBRE Credit Research said that MGM had good credit momentum supported by healthy operating fundamentals and strong market share gains at MGM China.
The company’s consolidated metrics are solid with lease-adjusted leverage in the low 4x-range (8x rent capitalisation), while CBRE analysts Colin Mansfield and Connor Parks expect that MGM will generate nearly US$2.0 billion (MOP16.1 billion) in FCF for 2024.
“We also forecast MGM China growing margins toward 27% (after corporate expense and royalty payments), FCF margin to be in the high-single digits (after dividends), and standalone leverage in the high-2x range,” the analyst wrote.
