Caesars, MGM Draw on Bank Credit Lines, Cash Becomes King for Fragile Gaming Industry
Posted on: March 17, 2020, 09:05h.
Last updated on: March 17, 2020, 12:37h.
Caesars Entertainment Corp. (NASDAQ:CZR) and MGM Resorts International (NYSE:MGM) are among the gaming companies scrambling to bring cash onto their balance sheets by accessing revolving credit. That’s as the industry wrestles with temporary casino closures across the US because of the coronavirus outbreak.
On Monday, Caesars said it will draw $975 million, $161.4 million, and $15 million for a total of about $1.15 billion from three revolving credit facilities, while MGM said it’s tapping $1.5 billion worth of reserve loans.
On March 16, 2020, the Company announced that it had fully drawn the remaining available capacity under each of the Revolving Credit Facilities as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets,” according to a Caesars filing with the Securities and Exchange Commission (SEC).
MGM and Caesars, two of the largest operators on the Las Vegas Strip, aren’t the first gaming companies looking to fortify their balance sheets amid market duress caused by the COVID-19 pandemic. Last week, Penn National Gaming (NASDAQ:PENN) said it would access a short-term credit line, while Wynn Resorts (NASDAQ:WYNN) announced plans to drawdown an $850 million revolver.
Time Is Right for Cash
Caesars, MGM, Penn National, and Wynn, along with rivals, have been hammered by the coronavirus outbreak, which has grounded business and leisure travel in the US to rock bottom levels. After contending with a 15-day gaming property closure in Macau last month, MGM and Wynn voluntarily shuttered their Strip integrated resorts to prevent spreading of the respiratory illness.
In Las Vegas, Caesars hasn’t followed suit by temporarily closing casinos. But like rivals MGM and Penn, among others, the Caesars Palace operator is suspending operations at various regional properties amid a slew of state-issued directives banning large gatherings.
The moves by gaming companies to use credit lines comes at a time of elevated financing concerns across multiple industries. Specific to casino operators, speculation recently emerged that three banks looking to sell $7 billion worth of commercial paper to finance Eldorado Resorts’ (NASDAQ:ERI) $17.3 billion takeover of Caesars may have to sit on those obligations due to waning appetite amid the COVID-19 epidemic.
That’s one sign that with equity prices depressed and no indication the travel and leisure industry will return to normal over the near-term, corporate bonds issued by gaming companies would likely carry high yields and face limited demand, forcing operators to access cash in other ways.
Prepared For The Worst
Few operators have been pummeled by the coronavirus on par with MGM, as nearly all of that company’s properties across the country, including the Strip, are temporarily closed. The stock is down almost 43 percent this month, and the company recently scrapped a $1.25 billion buyback plan.
However, MGM’s balance sheet is strong due to $8.2 billion in proceeds from recent real estate deals and solid access to short-term financing.
“As of March 11, 2020, the Company had cash investments of approximately $2.4 billion, excluding MGM China Holdings Limited and MGM Growth Properties LLC, and after giving effect to the approximately $857 million paid in connection with the debt tenders,” according to a filing with the SEC. “In addition, the Company has a $1.5 billion undrawn revolving credit facility, providing approximately $3.9 billion of liquidity.”