MGM China US$500m bond draws strong response

Published 19 June 2024, 16:03

MGM China has become the second Macau casino operator to tap the US dollar bond this year, pricing a US$500m seven-year non-call three note at par to yield 7.125%.

The bonds will be used to repay part of a revolving credit facility due in 2026. Last month, MGM drew down HK$6bn (US$768m) of the HK$14.4bn revolver to repay a US$750m 5.375% May 2024 note, when yields on Treasuries were high. Seven-year Treasuries reached 4.71% on April 30, the highest level this year, and were trading at 4.22% on Tuesday.

MGM has been waiting for favourable market conditions to come back to the bond market.

"They've been planning that for a while ... and we picked the right window to come to the market," said a banker on the deal. "Treasuries have rallied a bit and the market is firm. It's for issuers like MGM who focus on absolute yields to come to the market."

The deal size was capped at US$500m. The banker said MGM has abundant cash on hand, so it had no plan to upsize despite the strong market response. The company had cash and cash equivalent of HK$4.87bn as of March 31, and Lucror Analytics estimates that the total available amount of the revolver after the bond issue will be US$1.3bn.

The casino operator aimed to lock in the long-term rate and push out the maturity with a seven-year tenor, so that it will have "a good mix of floating-rate notes and fixed-rate notes", said the banker.

"If it's a good market with a lack of supply in general and good demand out there, why not do it now? You never know what will happen in the future," the banker said, commenting on why MGM did not wait until a US rate cut to come to the market.

The deal is the second dollar bond from Macau this year, following Melco Resorts Finance's US$750m 7.625% eight-year noncall three bond in April.

“There is a general recognition of the company's credit … and how they have continued to win market share in their business,” said a second banker on the deal. MGM's market share increased to 17% in the first quarter this year, compared to 15.2% at the end of 2023 and 9.5% in 2019.

The company did a two-day execution. It announced the deal on Monday evening with initial price talk of 7.25%–7.5% and received more than US$1bn in indications of interest from US investors. Bookbuilding continued for a second day, and the price guidance was revised down to 7.25%–7.375% on Tuesday morning.

Final books were over US$3.5bn, including US$150m from the leads. Asian investors took up 57%, the US 38% and EMEA 5%. Asset and fund managers received 61%, banks 30%, central banks, sovereign wealth funds, pension funds and insurers 5% and private banks 4%.

Bankers estimated the deal was priced at fair value with zero new issue premium. The second banker used the issuer's US$750m 4.75% February 2027 notes as comparables and added a 4.5-year extension. That note was trading at 6.7% on Tuesday.

The notes were trading at 50–75 cents above reoffer this morning.

Bankers said there is a strong appetite for gaming names, but the debt maturities and capex plans of other companies in the sector will be key to whether there are more such deals.

The first banker said the Macau gaming sector has always been popular among investors. For Asian investors, it is a business that is rarely seen outside the special administrative region, while for US investors, those companies are "tied to names they're familiar with in the US with an Asia twist".

The Reg S/144A deal will be rated B1/B+/BB–, in line with the issuer.

Bank of America, Deutsche Bank and Bank of China Macau branch were joint global coordinators. ICBC (Macau), Bank of Communications Macau, BNU Macau, SMBC Nikko and UBS were joint bookrunners. Banco Comercial de Macau, Barclays, BNP Paribas, JP Morgan and Scotiabank were joint lead managers.