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Do I smell a converts deal and/or equity deal?

Yesterday, MGM announced that it entered into the 7th amendment to its credit agreement.  We wouldn't be surprised if MGM were to issue converts and/or equity on the back of a strong quarter and bullish conference call.

This most recent amendment allows MGM to issue new debt as long as that debt doesn't have seniority over the bank debt or debt that is being refinanced with the issuance proceeds and extends MGM's maturities.  It also allows for an equities issuance that doesn't result in a change in control.  The only give back from MGM is to permanently reduce the bank debt commitment upon any issuances that aren't going towards reducing existing maturing bonds. Below is a summary of Amendment #7.

  • Allow MGM to incur an additional $1BN of debt, provided that the debt is unsecured and covenants are no more restrictive than those contained in MGM's current "Qualified Unsecured Debt"
  • Other than the first $250MM, 50% of the proceeds from any issuance are required to pay down "Qualified Unsecured Debt", specifically proceeds will go towards permanently reducing MGM's term loan and revolving credit facility on a pro-rata basis
  • MGM may also issue "Refinancing Indebtedness" so long as the Refinancing Indebtedness:
    • Has a maturity that dates six months post the maturity of the Credit Agreement and is longer dated than the debt it is meant to take out
    • Is not senior to the Refinanced Indebtedness
    • Amount is not more than 125% of the Refinanced Indebtedness
    • Covenants are no more restrictive than those contained in the company's existing senior secured indentures
  • Company may issue additional equity so long as such issuance does not result in a change of control
    • Other than the first $500MM, MGM must apply 50% of the net proceeds from any issuance towards the permanent reduction of MGM's term loan and revolving credit facility on a pro-rata basis