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Fitch Ratings Gives MGM Resorts a Boost Despite Economic Uncertainties;
Reduces Pace of Recovery for Las Vegas Strip

By Steve Green, Las Vegas SunMcClatchy-Tribune Regional News

Oct. 14, 2011--Debt analysts at Fitch Ratings in New York today offered a good-news, bad-news scenario for Las Vegas Strip gambling resort operators.

On the one hand, they upgraded key debt ratings for Strip giant MGM Resorts International, saying the company should have no trouble meeting financial obligations the next few years as it has plenty of liquidity through 2013.

On the other hand, Fitch said that because "the global and U.S. economic outlook has deteriorated considerably over the past few months," it has reduced its forecast for the pace of recovery on the Las Vegas Strip over the next 12 to 24 months.

Fitch now expects Strip visitation to increase 1 percent to 2 percent next year with gaming revenue increases in the low- to mid-single digits, compared to a high-single-digit revenue increase previously predicted.

The forecast compares to actual Las Vegas visitation numbers through August rising 4.7 percent from 2010, and Strip gaming revenue up 5.2 percent.

"Fitch believes the risk to Las Vegas Strip operating performance resulting from a greater-than-expected macro-economic slowdown is greater for the leisure/transient segment. Given much stronger corporate balance sheets today compared to 2007-2008, the convention/group segment should hold up better and provide some insulation for operators with exposure to that segment, such as MGM Resorts and CityCenter," Fitch said in its report.

While not mentioned in today's report, another big beneficiary in Fitch's scenario would be the conventioneer-oriented Las Vegas Sands Corp. properties: The Venetian, the Palazzo and the Sands Expo Center.

As for MGM Resorts International, Fitch boosted its issuer default rating (IDR) for the company to B- from CCC and also lifted ratings on individual classes of MGM Resorts' debt.

"Despite the reduced operating outlook, MGM Resorts has adequate financial flexibility commensurate with a 'B-' IDR, although the margin of safety is thin given its high leverage. MGM Resorts generates roughly 80 percent of wholly owned adjusted EBITDA from the Las Vegas Strip," the report said.

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

Fitch expects MGM Resorts to generate EBITDA from its wholly owned properties of $1.13 billion this year, $1.26 billion in 2012 and $1.31 billion in 2013.

Those numbers would put the company on a break-even pace after covering maintenance capital spending and interest costs on its $12 billion in debt, Fitch said. Those interest expenses run at roughly $950 million to $975 million per year.

Gaming companies have not yet reported third quarter earnings. In the second quarter, MGM Resorts posted a $3.45 billion profit thanks to its initial public stock offering of its Macau subsidiary.

On an ongoing basis, net revenue of $1.8 billion in the quarter was up from $1.547 billion a year ago thanks in part to stronger results from the Las Vegas Strip.

Fitch also today assigned an IDR of B- to MGM Resorts' half-owned CityCenter Holdings LLC and an IDR of B+ to 51 percent-owned MGM Grand Paradise S.A. in Macau.

"CityCenter has ramped up nicely over the last several quarters. Fitch's base case assumes the complex continues to ramp up and generate roughly $250 million of EBITDA (excluding condo sales) by 2013," the report said.


(c)2011 the Las Vegas Sun (Las Vegas, Nev.)

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