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MGM China Holdings Limited -- Moody's rates MGM China's proposed $500 million sr. unsecured notes Ba3, affirms Ba3 CFR; outlook remains negative

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Rating Action: Moody's rates MGM China's proposed $500 million sr. unsecured notes Ba3, affirms Ba3 CFR; outlook remains negativeGlobal Credit Research - 24 Mar 2021New York, March 24, 2021 -- Moody's Investors Service ("Moody's") today assigned a Ba3 rating to MGM China Holdings Limited's ("MGM China") proposed $500 million senior unsecured notes due 2027. MGM China Holdings Limited is a 55.95% owned discretely financed publicly traded subsidiary of MGM Resorts International ("MGM"). MGM's Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, and existing Ba3 rated senior unsecured notes, along with the Ba3 ratings on MGM China's existing senior unsecured notes are affirmed. MGM's speculative-grade liquidity rating of SGL-2 is unchanged. The outlook remains negative.Proceeds from the proposed $500 million senior unsecured notes, net of fees and expenses, will be used to repay a portion of the amounts outstanding under MGM China's revolving credit facility and for general corporate purposes to further enhance the company's liquidity in China. The additional liquidity is beneficial to improve flexibility to manage in the current weak operating environment including reduced visitation levels, but the incremental debt is a credit negative increase in leverage to help further cover any additional cash burn.Moody's affirmed the Ba3 CFR because MGM and MGM China have good liquidity to manage through temporary operating weakness related to the coronavirus. Moody's expects visitation and earnings to improve over the next year, and that debt-to-EBITDA leverage will decline to below 6.0x within a reasonable period of time. The company's properties also have strong market positions and brands that will attract sizable volume and generate good operating cash flow once the coronavirus-related distruptions subside.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: MGM China Holdings Limited....Senior Unsecured Global Notes, Assigned Ba3 (LGD4)Ratings Affirmed:..Issuer: MGM China Holdings Limited....Senior Unsecured Global Notes, Affirmed Ba3 (LGD4)..Issuer: MGM Resorts International.... Corporate Family Rating, Affirmed Ba3.... Probability of Default Rating, Affirmed Ba3-PD....Senior Unsecured Notes, Affirmed Ba3 (LGD4)Outlook Actions:..Issuer: MGM China Holdings Limited....Outlook, Remains Negative..Issuer: MGM Resorts International....Outlook, Remains NegativeRATINGS RATIONALEMGM's Ba3 CFR reflects the meaningful earnings weakness expected from efforts to contain the coronavirus and the slow recovery in volume now that properties have reopened. MGM is constrained by its concentration in Las Vegas, and exposure to the Macau gaming market that is experiencing volatility and dependent on travel, which is being curtailed during the pandemic. As a result of a slow expected recovery in Las Vegas and Macau, MGM is weakly positioned at the Ba3 level, as leverage is expected to remain elevated for at least the next year. The rating is supported by MGM's large scale, a diversified presence on the Las Vegas Strip across multiple customer segments, a solid position within several regional markets that are leading the company's recovery, and its presence in the large Macau market with favorable long-term prospects.MGM's speculative-grade liquidity rating is SGL-2 reflecting good liquidity. As of December 31,2020, the company, excluding MGM China and MGM Growth Properties LLC, had $4.1 billion of cash and cash investment balances, and an undrawn $1.5 billion revolving credit facility. As of December 31, 2020, MGM China had total liquidity of $1.25 billion, including $345 million of cash and $880 million of revolver availability between its two MGM China revolvers ($1.7 billion total liquidity proforma for $500 million bond offering). Moody's estimates the company could maintain sufficient internal cash sources after maintenance capital expenditures to meet required annual amortization and interest requirements for the next two year assuming annual EBITDA remains below the pre-coronavirus level. The expected EBITDA recovery will not be ratable over the next year and will very among the company's Las Vegas, Macau, and regional US properties. Because EBITDA will remain depressed and free cash flow will be negative for an uncertain time period, liquidity and leverage could deteriorate quickly depending on whether properties are open and the volume of activity.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of MGM from the current weak US economic activity and a gradual recovery for the coming year. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The gaming and related sectors have been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in MGM's credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and MGM remains vulnerable to the outbreak continuing to spread.MGM, like others in the gaming sector, is exposed to elevated social risks, particularly in terms of evolving demographic and societal trends that may drive a change in demand away from traditional casino-style gaming.MGM's financial policy is typically weighted towards shareholders with approximately 50%-65% of its free cash flow in normal operating periods allocated to dividends and share repurchases while the remaining 35%-50% will be used to fund investment spending or debt reduction. Leverage is typically high. MGM has favorably suspended its common dividend but still pays minority interest dividends since certain properties are not wholly owned (included MGM China). The company has engaged in sizable sale-leasebacks of its properties and partially utilized proceeds to repay debt and bolster the cash position. The master lease arrangement nevertheless creates risks including the inability to halt lease payments at individual properties without violating the master lease, thus creating a sizable annual fixed rent obligation. Moody's expects the company's financial policy will remain weighted towards shareholders but that the focus will favorably be on liquidity preservation and financial flexibility until the vistitation drag from the coronavirus meaningfully eases.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe negative outlook reflects the uncertain duration and recovery from the coronavirus-related earnings and cash flow pressure, which has led to higher debt and leverage even when property earnings recover. Moody's believes the disruption to visitationwill make it challenging for MGM to reduce debt-to-EBITDA leverage below 6.0x and restore positive free cash flow over the next twelve months. Earnings are recovring from the disruption in casino visitation resulting from efforts to contain the spread of the coronavirus including recommendations from federal, state and local governments to avoid gatherings and avoid non-essential travel, but remain well below pre-coronavirus levels, particularly in Las Vegas and Macau. These efforts included mandates to close casinos on a temporary basis, although facilities have reopened. The negative outlook also reflects the negative effect on consumer income and wealth stemming from job losses and asset price declines, which will diminish discretionary resources to spend at casinos once this crisis subsides. MGM remains vulnerable to travel disruptions and unfavorable sudden shifts in discretionary consumer spending and the pace at which consumer spending at the company's properties will recover.While not anticipated in the near term due to the current weak operating environment, ratings could be upgraded if: consolidated debt/EBITDA is sustained below 5.0x; the company maintains sufficient liquidity to support both recourse and non-recourse subsidiaries; operating results of MGM China operations, including MGM Cotai, track to estimated levels and share repurchases are funded with asset sale proceeds or cash on hand rather than debt. The leverage required for an upgrade also takes into account that reported credit metrics may experience some variability due to the timing of new resort openings and the closing of the announced and potential acquisitions.Ratings could be downgraded if liquidity deteriorates or if Moody's anticipates MGM's earnings declines to be deeper or more prolonged because of actions to contain the spread of the coronavirus or reductions in discretionary consumer spending. If consolidated debt/ EBITDA is sustained above 6.0x or the company deviates materially from its financial policy goals, the ratings could be downgraded.The principal methodology used in these ratings was Gaming Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244702. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.MGM owns and operates casino resorts in Las Vegas, Nevada; Springfield, Massachusetts; and, through its majority ownership stake of MGM China Holdings Limited, the MGM Macau resort and casino and MGM Cotai, which opened in February 2018. MGM also owns 50% of CityCenter in Las Vegas and a 42% stake in MGM Growth Properties LLC (MGP), a real estate investment trust formed in April 2016. MGM has entered into a long-term triple net master lease with MGP pursuant to which the company leases and operates 14 properties for MGP. Consolidated net revenue for the year ended December 31, 2020 was approximately $5.2 billion, down sharply from $12.9 billion in 2019.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Adam McLaren Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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