Debt maturities for casino developer and operator MGM Resorts International “remain formidable” through to 2016 says Fitch Ratings Inc.
That’s “especially when considering the somewhat thin FCF [free cash flow] at the U.S. restricted group level and a heavy project pipeline (about US$2 billion in U.S. and US$2.9 billion in Macau),” the credit ratings service says in a new report.
The latter number refers to the project costs for MGM Cotai (pictured in an artist’s rendering), a new resort located in a high-growth area away from Macau peninsula’s traditional downtown casino area.
MGM Cotai is currently on course for an “early 2016” opening according to the firm’s first quarter earnings call. MGM Resorts is 51 percent owner of MGM China Holdings Ltd, which will operate MGM Cotai.
Fitch says the default “inflection point” for MGM Resorts’ debt will be 2015-16 when capital expenditure on new projects will be at its peak, and debt maturities will amount to US$2.4 billion and US$1.6 billion respectively.
“A sharp negative turnaround in the operating environment and/or deterioration in the capital market conditions around that timeframe could stress liquidity,” states Fitch.
But it adds: “MGM’s liquidity has improved and we think that a near-term default is unlikely.”
In March 2009 MGM Resorts – then known as MGM Mirage – saw its auditors warn of a “substantial doubt about its ability to continue as a going concern”. At that time it faced a US$14.4 billion debt load after opening its US$8.5 billion CityCenter site in Las Vegas in the midst of one of the worst economic recessions in the United States for nearly 80 years.
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”I don’t see this project [Lisboeta Macau] will just go for the existing market clientele. The clientele I’m going for is… family [travellers]. This is a four-star resort and the pricing will be benchmarked against other four-star hotels in Cotai.”
Director of Macau Theme Park and Resort