Financial research firm CreditSights has warned that holders of MGM China’s 2033 bonds may not qualify for Change of Control protections should Barry Diller’s People Inc complete a takeover of MGM China’s parent company MGM Resorts International, mainly due to a special holding company exception contained in the indentures.
This, explain CreditSights analysts Nicholas Chen and David Bussey, differs from MGM China’s 2027 and 2031 bonds, which contain no such exception and would therefore likely be covered should the transaction proceed.
As reported by Inside Asian Gaming, People Inc – currently a 26.1% shareholder in MGM Resorts – last week submitted a formal offer to acquire all shares in the company it doesn’t already own for US$48.30 per share, a bid that values MGM Resorts at around US$18 billion. Should the offer be accepted, People Inc would take MGM Resorts private and hold just over 50.1% of the equity of the company, with other investors holding minority interests.
While CreditSights initially suggested that all outstanding bonds of MGM China would likely be protected via Change of Control provisions, it issued a new note on Tuesday in which it revealed that its view on the 2033 bonds had changed due to the existence of the HoldCo exception. This exception suggests that a takeover may not be deemed a Change of Control because MGM Resorts would continue to be the direct parent of MGM China with a 56% interest.
Specifically, the research firm said it believed People Inc could fall under the definition of a HoldCo if a takeover materializes, assuming it remains a widely held company with no shareholder controlling over 50% of its voting rights. Founder Barry Diller currently holds 46% of the total voting power in People Inc.
“As such, we acknowledge that this HoldCo exception is likely able to render the Change of Control moot for the [MGM China 2033 bonds],” the analysts wrote. They also pointed out that, even if a Change of Control was deemed to have occurred, a triggering event also requires a “Ratings Event” – defined as a one-notch downgrade or withdrawal of MGM China’s ratings from any one of Moody’s, S&P or Fitch within 60 days of the Change of Control.
A takeover of MGM Resorts by People Inc therefore poses an “event risk” to MGM China and its shareholders, even though CreditSights views the Macau-facing entity as boasting strong business and credit fundamentals.
Nevertheless, CreditSights maintained its view that MGM China is fundamentally stronger than its Macau peers and pointed out that the company remains the only high-yield casino operator so far to have recovered its leverage metrics to below pre-pandemic levels.
And while it “acknowledges that the proposed People Inc takeover of MGM Resorts remains an event risk for MGM China … we have also factored in [that] this transaction is still in the early stages; that the lack of details surrounding the exact form of funding for the People Inc takeover makes it difficult to ascertain the likelihood of a ratings event at this; that Change of Control protection appears to remain in place for 2027 and 2031 bondholders, due to the lack of the HoldCo exception in their indentures; and [that] we do not suspect a material change to MGM China’s operations or issuer-level debt position in the event of a takeover.”
