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When you can borrow $2.2bn (or more) from your credit facility at 4% and the debt doesn’t mature until 2013, shouldn’t you put some capital to work? This is the situation that BYD finds itself in thanks to the suspension of Echelon back in August. And it’s not like we’re at the top of the market either. MGM just sold Treasure Island at a gross purchase price of around 8x depressed 2009 EBITDA. We are in a buyer’s market, after all.

We believe MGM may be interested in selling other assets. It would seem to make sense for MGM to sell its 50% interest in Borgata back to BYD. BYD already manages the facility and has liquidity. MGM, needs to de-lever and find liquidity. Strategically, it makes sense for BYD to fully control the asset for future cross-marketing benefits combined with an eventual Las Vegas development. Most importantly, the deal would be accretive from both a free cash flow and earnings per share perspective.

BYD is effectively borrowing at an incremental rate under 4%. At 7.5x our projected Borgata 2009 EBITDA, BYD would be paying $800 million, including $350 million in assumed debt, for the remaining 50% of Borgata it does not own. We calculate EPS accretion of $0.07-0.13 at that price, or 11-17% accretive to the current consensus estimate. On a free cash flow per share basis a Borgata deal could generate accretion in the 20% range.

This is a deal BYD probably should pursue.