Posted on: November 11, 2022, 03:05h. 

Last updated on: November 11, 2022, 04:01h.

MGM Resorts International (NYSE:MGM) will make a subordinated revolving credit facility of up to $750 million available to MGM China, becoming the latest US-based parent to extend credit to its Macau unit.

MGM China
MGM Cotai in Macau. MGM is loaning MGM China $750 million. (Image: MGM Resorts)

The Las Vegas-based casino operator made the announcement in regulatory filings with the Securities and Exchange Commission (SEC) and the Hong Kong Stock Exchange (HKSE).  The financing has a two-year term with an annual interest rate of 4%, plus “the prevailing market rate.”

The Agreement highlights both MGM Resorts International’s and the Company’s confidence in the long-term growth potential of Macau. The availability of the Facility further bolsters the Company’s already strong financial position in meeting future working capital and other funding needs,” according to the HKSE filing.

As of the date of the announcement, the Bellagio operator owns about 56% of the listed share capital of MGM China. That Macau concessionaire operates MGM Cotai and MGM Macau.

MGM Joins Rivals Sands, Wynn

With the MGM news, the trifecta of US-based operators loaning capital to Macau units is now complete. Analysts widely expected all three would have to do so due to the gaming industry slump in the special administrative region (SAR).

In June, Wynn Resorts (NASDAQ:WYNN) extended a $500 million credit facility to its Wynn Macau arm. Wynn is providing its Macau arm with the credit facility to support “potential future working capital and other funding needs, if necessary.” As of June 14, Las Vegas-based Wynn Resorts owns approximately 72% of the issued share capital of Wynn Macau. That occurred about a month after Wynn Macau  amended a $1.5 billion credit facility.

In July, Las Vegas Sands (NYSE:LVS) announced it would loan Sands China $1 billion. The Las Vegas-based casino operator is loaning its Macau arm $1 billion, which is repayable on July 11, 2028. For the first two years of the loan, Sands China Ltd. (SCL) has the option of paying 5% cash interest, or 6% in-kind interest per year. After that, only cash interest at a yearly rate of 5% will be applicable.

Sands China runs five Macau integrated resorts, making it the largest operator there.

Why the Financing is Crucial

MGM, Sands and Wynn are three of the six Macau concessionaires. But the SAR’s current retendering has seven participants thanks to the surprise entry of Genting Malaysia. The territory’s new gaming laws make clear licenses will be awarded to just six operators.

That’s one reason the capital provided by the US companies to their Macau units is crucial, because the financial health of concessionaires is a front-and-center issue in the retendering scheme.

So is the mandate that operators spend north of $1 billion in the years ahead on non-gaming amenities, meaning it’s pivotal concessionaires prove they have the financial resources to make good on that commitment.