Fitch Ratings on May 29 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, citing the group's improving credit profile as it diversifies itself away from the Las Vegas Strip.
The ratings outlook is stable. The affirmation also applies to MGM Grand Paradise Ltd., a unit of MGM China.
Fitch said the BB rating also takes into account MGM's high asset quality and strong market position across multiple price points in Las Vegas. The agency noted that MGM's development pipeline is largely complete, boosting its discretionary free cash flow profile.
Fitch forecasts MGM's leverage to fall below 5x EBITDA on a gross basis by the end of 2020, mainly from earnings growth, as MGM Cotai and Springfield improve and the recently acquired Empire City's EBITDA starts to flow through. Realized returns from the Park MGM investment are also expected to contribute to the deleveraging.
The agency highlighted MGM's acquisitions over the last three years, which it said had helped improve the group's overall geographic diversification. The company acquired Atlantic City's Borgata in 2016, Ohio's Northfield Park in 2018 and New York's Empire City Casino in 2019. It is also bidding to obtain a gaming license in Japan, after which it plans to co-develop an integrated resort in Osaka.
Fitch added that MGM's two properties in Macao provide global diversification benefits and exposure to a market with favorable long-term growth trends. However, the agency expects flat, or potentially slightly negative, growth in the region's gross gaming revenues for 2019.
Meanwhile, Fitch said it is positive on the long-term prospects of the Las Vegas Strip, which represents about 55% of MGM's total property EBITDA. MGM operates 14 resorts on the Strip, including Mandalay Bay, Aria and MGM Grand.
The rating agency said it could upgrade MGM's ratings to BB+ if the group continues to see stable or positive trends in Las Vegas and Macao. Conversely, it could downgrade the ratings if MGM shows potentially weaker-than-expected operating performance, if the company funds a new large-scale project or acquisition through debt or if it pursues a more aggressive financial policy.