Joining a growing list of gambling companies seeking to raise cash through the capital markets, MGM Resorts International is set to sell $500 million in senior debts that are due in 2028.
The world’s largest casino resort operator said it plans to use the money from the debt sale for general business purposes, which could include refinancing existing debt.
However, MGM Resorts International did not list the notes’ coupons in a prospectus filed with the Securities and Exchange Commission. In May, MGM finalized the sale of $750 million in senior notes that were due in 2025 at an interest rate of 6.75%. The recent $500 million senior note sale will probably carry a higher interest rate due to the maturity of the debt.
As of June 30, MGM had $11.34 billion in long-term debt according to the latest company quarterly filing and $8.1 billion in cash on hand. The company has no debt maturing before 2022.
COVID Restrictions Restrict Profits
MGM is the biggest operator in Las Vegas, with 13 world-class casino resorts on the iconic Strip. As such, MGM has been deeply impacted by the COVID-19 restrictions imposed by both the Nevada Gaming Commission and Governor Steve Sisolak. While some restrictions have eased, the forced a three-month shutdown of casinos across Nevada sent MGM stock to a 35.38% loss.
MGM’s financial losses are not limited to Nevada; MGM also owns the Borgata in Atlantic City, as well as properties in Mississippi, Ohio, Massachusetts, Maryland, New York, and 8 properties in China.
By August 2020, MGM International cut 19,000 jobs as a result of the COVID-19 shutdowns and restrictions. Those job cuts represent 25% of the workforce; before the financial disruption caused by the shutdowns, MGM employed 68,000 people worldwide.
MGM notes that the reaction to the pandemic has caused “significant disruption of global financial markets” and that could hamper the company’s ability to access future capital.
However, right now, financing is readily available for gambling companies. MGM, DraftKings, and Penn National Gaming, among others, have raised cash in recent weeks.
Barry Diller and IAC Believes in a Travel Rebound
Billionaire investor Barry Diller, who is also deeply invested in the travel website Expedia, grabbed a $1 billion stake in MGM this last August. Diller saw that MGM International had great properties, excellent management, and that BetMGM presented a huge opportunity in online casino and sports betting.
While there will be profound changes in the way people travel in the future, Diller thinks that travel will substantially return once there is a “date certain” that the COVID-19 restrictions have finally ended. Diller initially thought that time might have come by June 2021, but he now thinks it will take a longer for life to return to normal.
When people feel they can finally travel freely again, without onerous restrictions, Diller is sure his stake in MGM International Resorts will pay off. Morever, his stake in Expedia goes hand-in-hand with his stake in MGM. Hopefully, tourist travel will return to both Atlantic City and the Las Vegas Strip well before next summer.
BetMGM Could Help Keep MGM Afloat
GVC Holdings Plc, MGM’s partner on the BetMGM sports betting and online casino apps, forecasts that the US sports betting and iGaming market will be worth around $20.3 billion by 2025. GVC also noted that in August, BetMGM had a 22% share of the New Jersey online casino market, while its share of online sports betting was 10%. BetMGM also held a 24% share of New Jersey’s retail sports betting market.
GVC also noted the combined market share in Indiana, Colorado, and West Virginia is at 15% to 20%.
GVC also estimates that BetMGM’s online casino and sports betting share in the markets where it currently operates is 17%. BetMGM should generate an estimated net revenue of $150 million to $160 million this year alone.