Moody’s Investors Service Inc says that the “incremental debt” from a planned offering of senior unsecured notes by Macau casino operator MGM China Holdings Ltd is “credit negative” for that firm. Nonetheless, the additional liquidity “is beneficial to improve flexibility to manage in the current weak operating environment,” stated the ratings agency.
MGM China announced on Thursday plans to issue US$750 million in aggregate principal amount of 4.75-percent senior notes, due February 1, 2027. The company said it expected net proceeds of about US$741 million from the exercise.
MGM China said it intends to use the net proceeds to “repay a portion of the amounts outstanding under its revolving credit facility and for general corporate purposes.”
MGM China is 56-percent owned by United States-based casino operator MGM Resorts International.
The ratings agency assigned a ‘Ba3’ rating to MGM China’s senior notes. Corporate financial obligations in the ‘Ba’ grouping are of non-investment grade, and are considered to have “speculative elements and are subject to substantial credit risk”.
Moody’s said nonetheless it affirmed the Ba3 corporate family rating “because MGM and MGM China have good liquidity to manage through temporary operating weakness” related to the Covid-19 pandemic.
As of December 31, MGM China had cash and cash equivalents of HKD2.6 billion (approximately US$340 million). The company also had available capacity of HKD6.0 billion under existing revolving credit facilities.
“Moody’s expects visitation and earnings to improve over the next year, and that debt-to-earnings before, interest, taxation, depreciation and amortisation leverage will decline to below 6.0 times within a reasonable period of time,” it stated.
It added: “The company’s properties also have strong market positions and brands that will attract sizeable volume and generate good operating cash flow once the coronavirus-related disruptions subside.”
(Updated at 10am, March 26)
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