Fitch Ratings Inc has upgraded MGM Resorts International’s rating to ‘B+’ from ‘B’ and subsidiary MGM China Holdings Ltd’s rating to ‘BB’ from ‘BB-’. The rating outlook remains positive, the rating agency said in a note on Thursday.
MGM China’s stand-alone credit profile is close to investment grade. But since MGM Resorts controls 51 percent of MGM China, Fitch links the rating of the Macau-based casino operator to the parent’s rating.
The upgrade and the positive outlook reflect MGM Resorts’ strong performance on the Las Vegas Strip and in Macau as well as Fitch’s longer-term positive outlooks for these markets, the agency said in the note.
“The rating actions take into account MGM Resorts’ improving FCF [free cash flow] profile bolstered by the company’s declining interest expense and distributions from MGM China,” it added.
MGM Resorts has a US$5 billion development pipeline, among the largest in the gaming industry. It includes the US$2.9 billion under-construction MGM Cotai project, which “is fully funded between cash on hand, projected FCF and US$1.45 billion available on the revolver in Macau,” Fitch said.
In the U.S., MGM Resorts started construction on its Maryland project this summer and a Springfield project is pending the results of a referendum set for this November in Massachusetts.
Fitch estimates that MGM Resorts will need to access to additional US$1 billion to US$1.5 billion in capital to meet its funding needs through 2016.
The rating agency earlier this month cut its full-2014 growth forecast for Macau’s casino gross gaming revenue to 4 percent. Continued weakness in the VIP segment led to the downward revision.
In Thursday’s note, Fitch said MGM Resorts’ expected growth on the Las Vegas Strip might offset the recent softness in Macau until 2016, when its Cotai project is schedule to open.
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”We expect Goa to quickly become a US$1 billion market as it transitions to land-based casinos (from US$150 million today), which is still just a fraction of India’s total GGR potential of US$10 billion to US$17 billion”
Analyst at Union Gaming Securities Asia