S&P: MGM Resorts International Proposed $500 Million Senior Notes Rated 'BB-' (Recovery Rating: '3')
Key analytical factorsOur recovery ratings on MGM Resorts' senior secured debt and senior unsecured debt remain unchanged at '1' and '3', respectively. Our simulated default scenario contemplates a payment default in 2020, reflecting a significant decline in cash flow due to prolonged economic weakness and increased competitive pressures, particularly in Las Vegas, where MGM Resorts' operations are concentrated. We assume that any debt maturing between now and the year of default is refinanced on the same terms and its maturity is extended to at least the year of default. Our recovery analysis is based on the operations on the company's wholly owned domestic operations. We value MGM Resorts using an EBITDA at emergence of about $900 million. This is roughly 15% higher than our estimate of fixed charges (interest, amortization, and maintenance capital expenditures) at default because we believe MGM's Las Vegas properties, which experienced volatility in the downturn, would experience a rebound in cash flows of at least 15% once the economy improved. This growth in cash flow would be similar to what the company experienced in 2011 following the last downturn. We assume a reorganization following the bankruptcy, using a 7x multiple to value the company, consistent with multiples we use for other diversified gaming companies. We assume MGM Resorts' revolving credit facility is 85% drawn at the time of default. We assume administrative claims total 5% of gross enterprise value, given the two classes of debt in MGM Resorts' capital structure. MGM Resorts' senior secured credit facility is secured by Bellagio and MGM Grand Las Vegas. As a result, we allocate value to secured creditors based on the percentage of property-level EBITDA these two properties represent. We estimate these two properties comprise about 55% of MGM's total property-level EBITDA (pro forma for the addition of Borgata to the portfolio) after the rent expense it pays to MGM Growth Properties. MGM Resorts' unsecured lenders' recovery prospects are supported by the company's unpledged assets (all operating assets aside from Bellagio and MGM Grand Las Vegas) as well as residual value from those two properties after satisfying secured claims. Simulated default assumptionsYear of default: 2020EBITDA at emergence: $900 millionEBITDA multiple: 7xSimplified waterfallNet enterprise value (after 5% administrative costs): $6 billionValuation split in % (obligors/non-obligors): 55/45Collateral value available to secured creditors: $3.3 billionSenior secured debt: $1.3 billion--Recovery expectation: 90% to 100%Total value available to unsecured creditors: $4.7 billionSenior unsecured debt: $7.1 billion--Recovery expectation: 50% to 70% (upper half of the range)Note: All debt amounts included six months of prepetition interest. Value available for unsecured creditors equals unpledged value plus remaining enterprise value from excess collateral after repayment of secured debt.