Moody’s upgrades outlook for MGM Resorts

By Steve Green

Wednesday, March 2, 2011 | 5:13 p.m.

For the second consecutive day, Moody's Investors Service has upgraded its outlook on a big Las Vegas Strip hotel-casino operator.

After boosting its ratings for Caesars Entertainment Corp. on Tuesday, Moody's did the same for MGM Resorts International on Wednesday, citing "signs of modest improvement in demand trends" on the Strip.

MGM Resorts' corporate family rating was raised to B3 from Caa1 and its probability of default rating was raised to Caa1 from Caa2. While higher than Caesars' ratings, the new MGM Resorts' ratings are still in speculative territory.

The rating outlook for some $7 billion of rated MGM Resorts debt is stable, Moody's said.

"The upgrade reflects signs of modest improvement in demand trends in Las Vegas, debt repayment during 2010 from the proceeds of equity issuances and completion of a new multi-year financing package for CityCenter," Moody's said in Wednesday's report.

"Moody's believes MGM's credit metrics will begin to improve modestly due to the improved operating outlook," Peggy Holloway, vice president and senior credit officer, said in a statement.

"Nevertheless, MGM's Caa1 probability of default rating reflects the company's high leverage -- debt/EBITDA is over 11 times -- and significant refinancing risk over the medium-term," added Holloway.

EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization.

"A significant portion of MGM's revenue and earnings comes from casino properties located on the Las Vegas Strip -- a market that Moody's believes has started a slow recovery -- but one that will not pick up steam until 2012. Thus, in Moody's view, MGM's credit profile will not materially improve without further deleveraging transactions and MGM faces significant refinancing risk given large debt maturities in 2013 and beyond," Moody's said.

MGM Resorts on Feb. 14 reported a fourth quarter loss of $139 million, or 29 cents per share in the quarter, an improvement from the loss of $434 million, or 98 cents per share in the prior-year quarter.

The 2009 quarter included impairment charges of $548 million, or 73 cents per share, related to MGM Resorts' undeveloped land in Atlantic City.

At year-end, MGM Resorts was carrying some $12 billion in long-term debt.

At Standard & Poor's, MGM Resorts' rating outlook in October was revised to stable from developing and its CCC+ corporate credit rating was affirmed. That was after MGM Resorts announced a common stock offering to beef up its balance sheet. That offering raised $588.8 million.

Fitch Ratings also assigned a positive rating outlook for MGM Resorts on the equity issuance news; and affirmed its issuer default rating at CCC.