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Fitch affirms MGM Resorts on Bellagio, Circus asset sales

Fitch Ratings on Oct. 21 affirmed the long-term issuer default ratings of Las Vegas-based hotel and casino operator MGM Resorts International and its subsidiary, MGM China Holdings Ltd. at BB with a stable outlook.

The rating agency also affirmed MGM's senior secured credit facility at BBB-/RR1 and its unsecured notes at BB, but revised the unsecured notes' recovery rating to RR4 from RR3 after the group announced a series of asset sales on Oct. 15.

These transactions include the $825 million sale of Circus Circus Las Vegas to an affiliate of Treasure Island owner Phil Ruffin and the approximately $4.25 billion sale and leaseback of The Bellagio Las Vegas' real estate assets to Blackstone Real Estate Income Trust Inc., a subsidiary of private equity giant Blackstone Group Inc.

Meanwhile, Fitch affirmed MGM China's unsecured notes at BB/RR4 and assigned the same rating to the Macao-based subsidiary's new unsecured revolver. The agency has withdrawn the ratings on MGM China's senior secured facility after the company repaid it with the new unsecured revolver. The BB issuer default rating on MGM Grand Paradise Ltd. was also withdrawn. MGM Grand Paradise was a co-issuer under the prior senior secured facility.

Fitch predicts EBITDAR growth at MGM as MGM Cotai and Springfield ramp up, as EBITDAR from Empire City, which it acquired in January, starts to reflect and as returns on the Park MGM investment are realized.

The rating agency reiterated MGM's improved geographic diversification since 2016.

Fitch said MGM's issuer default ratings could be upgraded to BB+ as its adjusted debt/EBITDAR after adjusting for distributions to minority holders and from unconsolidated subsidiaries approaches 4.5x on gross basis and 4.0x net basis.

A downgrade or a negative outlook is likely if MGM's adjusted gross debt/EBITDAR remains above 6.0x for an extended period of time. This could happen if the company sees weaker-than-expected operating performance, if it funds a new large-scale project or acquisition with debt or if it takes a more aggressive posture with respect to financial policy.