MGM Resorts International’s (NYSE: MGM) noninvestment-grade deferred payment rating of “B1” was affirmed past Moody’s Investors Service, which maintained a “stable” outlook on the gaming company’s deferred payment profile.
The “B1” ground level is quadruplet notches into junk territory on Moody’s scale, and bonds with that rating are considered “highly speculative” by the research firm. MGM generated free cash flow of $1.8 billion in 2023 and concluded the twelvemonth with $2.92 billion in hard currency and hard currency equivalents on hand. The Bellagio operator has $6.34 1000000000 in long-term debt. Moody’s mentioned the issuing of elevated leveraging and long-term renting commitments.
The rating is constrained past the company’s high-pitched leverage, including the company’s sizeable leases on the equilibrium sheet,” noted the explore firm. “Moody’s expects MGM will actively follow up on large integrated resort developing projects that would ensue in elevated leverage for some time until it completes the project.”
The ratings federal agency added that the “stable” outlook on MGM reflects strength inward the operator’s Las Vegas Strip and regional casino segments as advantageously as ongoing recovery inward Macau, which is supportive of MGM China. MGM controls 56% of the Macau unit.
MGM Credit Rating Not an Outlier inwards Casino Industry
MGM’s junk course credit rating isn’t a electronegative commentary specific to the company. Rather, such course credit grades are plebeian across the gaming industry.
That’s the ensue of cassino gaming existence a capital-intensive force field and some operators, including those with Macau exposure, taking on debt to live during the darkest days of the coronavirus pandemic. Despite its noninvestment-grade credit entry rating, MGM’s liberate cash flux posture is unanimous and it bought plunk for $2.3 1000000000 worth of its shares cobbler's last year.
Some investors believe the buy in is undervalued and aspect it as a meridian beneficiary of consumers favoring experiences over goods, a factor out viewed as a accelerator in arrears the becalm current of impressive revenue gaming revenue (GGR) data come out of Las Vegas.
“MGM Resorts International’s (B1 stable) credit profile reflects the company’s large scale, strong presence on the Las Vegas Strip, and a strong post within several regional markets crosswise the US,” added Moody’s.
How MGM Credit Rating Could Rise or Fall
As is the pillow slip with many gaming companies, MGM belike isn’t inward a billet for a near-term rise of its deferred payment rating, but that’s not an impossibility, either.
Ratings could be upgraded if the companion generates uniform positive degree unloosen immediate payment flow, debt-to-EBITDA is sustained infra 6.0x, and the accompany maintains a balanced financial insurance with honor to shareholder returns, including deal repurchases,” observed Moody’s.
A make a motion to investment-grade soil could submit some time to materialize for MGM. Regarding the opening of a downgrade, Moody’s said that would follow a possible action if the casino giant’s liquidity is pinched, if earnings before interest, taxes, depreciation, and amortisation (EBITDA) declines, or if debt/EBITDA ratios increase.
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