MGM China Dashes for Cash, Lands $503 Million Bank Credit Line

Posted on: May 28, 2020, 01:37h. 

Last updated on: May 28, 2020, 02:24h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Looking to shore up its balance sheet as Macau visits and revenue remain in the dumps, MGM China said it gained access to a new $503 million credit facility.

MGM China Gains Credit Facility
MGM China is raising more cash as it struggles with still low Macau visits and revenue. (Image: CNBC)

The operator of the MGM Cotai and MGM Macau said it’s initially drawing $301.81 million on the revolver, but it can later be upsized to $503 million.

The revolving credit facility will be available for drawing from the date of the facility agreement to and including the date falling one month prior to the final maturity date (subject to satisfaction of conditions precedent, including evidence that [MGM China’s] existing HKD9.75 billion senior unsecured revolving credit facility has been fully drawn),” according to a filing from the operator.

Last month, it was reported the gaming company had $387 million in cash and could access credit lines up to $580 million – enough for it to survive 15 months in an extended low- or no-revenue environment.

MGM Resorts Stipulation

The newly announced line of credit has a maturity date of May 15, 2024 and carries an interest rate ranging from 1.625 percent to 2.75 percent. That rate is determined by the operator’s leverage ratio, which stands at 2.9x on a trailing 12-month basis.

Typically, companies don’t prepay lines of credit unless they’re eagerly looking to reduce interest expense or are able to engineer dramatic increases in free cash flow. But there’s a clause in the filing that indicates MGM China could be forced to prepay the aforementioned revolver.

That scenario comes to pass if parent company MGM Resorts International reduces its stake in the Macau operator to less than 50 percent from nearly 56 percent today.

Analysts view MGM selling its China business outright as unlikely. But the Aria operator also isn’t shy about mentioning the Macau unit as among its remaining assets it could use to bolster its own cash position.

Prudent Move

News of MGM China’s new credit line arrives Macau operators continue grappling with the effects of the coronavirus. The case count in the Special Administrative Region (SAR) has been steady at 45 for weeks, and there are no reported deaths there.

However, strict travel restrictions between the gaming hub, Hong Kong, and mainland China remain in place, presenting a major roadblock to concessionaires’ recovery efforts. Data confirms some VIPs remained devoted to Macau amid the pandemic, but not enough to prop up sagging visitation and gross gaming revenue (GGR) figures.

The overall occupancy rate at MGM Cotai and MGM Macau in the first quarter was just 36 percent, as the SAR’s casinos were shuttered for 15 days in February.

Bans remain in place. But officials in China, Hong Kong, Macau, South Korea and Taiwan are mulling plans that could see those regions liberalize travel among themselves while maintaining limitations on visitors from other areas. Mainland China, Hong Kong and Taiwan combine for about nine of every 10 visits to the gaming hub.