MGM CONVERT CALL: "NOTES"

Surprise, surprise, MGM is bullish!  Kudos to MGM though for the timing of the convertible.  We thought it was a good idea at $12 so they are smarter than us.

MGM is starting their roadshow today for a private offering of $750MM convertible senior notes due 2015, proceeds of which will go to repay part of the outstanding debt drawn on MGM's revolver.  MGM will also enter into capped call transactions to reduce the potential dilution of the notes, when and if MGM's stock reaches levels that exceed the convert strike. Below are our notes from the call.

CALL NOTES

Security Detail

  • Coupon is 4.5%, (4.25%-4.75%)
  • 15% over-allotment option for 13 days
  • 2015 maturity
  • Non-callable for life
  • 100% of par put feature upon "Fundamental Change"
  • Call caps will raise premium up to 50%
  • 60 day lock up for the company and Tracinda
  • Book-runners: BoFA/ML, Barclays, JPM, DB
  • Books close at 2:30pm today and notes close & fund week of April 19th

General Company Commentary

  • Las Vegas market has stabilized
  • MGM's capital needs are minimal over the next few years - will spend less than $200MM/ year in maintenance over the next few years
  • Believes that CityCenter will be the significant driver of visitation to Las Vegas 
  • Non convention visitation to Las Vegas is up 4% (yeah but these people spend very little money)
  • Believe that the convention business in town is starting to improve and saw early signs of that this quarter
  • Apparently South West is looking to add capacity to Las Vegas in the spring
  • Domestic and play has been weak and will likely remain weak over the near term, but International is very strong
  • MGM market share, even excluding Aria, has increased in Las Vegas
  • Convention business for MGM will be up y-o-y starting 2Q2010, and convention rooms on the books for 2011 are up 20% from where they were a year ago for 1 year forward... so this favorable mix shift will help them increase realized ADR
    • Booked 508k convention room nights in 4Q09
  • Claims that MGM is starting to be able to raise rates more than they have to lower them...
    • Ok what does that even mean? Just say hey - ADR is up y-o-y in April
  • Believes that RevPAR will be up year over year in 2H2010
  • Launching a new players club in 2H2010 (launched in June)
    • database has 60MM people, of which 29MM are current Players Club customers
    • New Players Club will be more transparent with a new look, tiered cards and revealed comps
  • Operating leverage:
    • 1% change in occupancy = $36MM of EBITDA
    • $5 ADR = $54MM of EBITDA
    • $5 RevPAR = $38MM of EBITDA
  • I love how Jim describes CityCenter - "very beautiful and people love it"... well unfortunately it makes no money
  • Aria is already reaching 70% occupancy; thinks it will get to 80% by YE.  Aria had good international gaming numbers and good domestic numbers around events - otherwise it's been slow
  • Just starting closing on the condos.  Started Mandarin in the beginning of the Q, Vdara at the quarter end, and Veer will start closings in 2Q2010
  • Crystals made money in the 1Q for CC
  • This offering is another step in MGM's efforts to deleverage its balance sheet. MGM Macau's IPO in the 3Q2010 will help them in this goal, as will the sale of their 50% interest in Borgata
  • Their $380MM tax refund didn't hurt either....(in their deleveraging effort)
  • Held a little lower than last year - but still in the normal range
  • Expects that CityCenter and Aria will be the most profitable properties on the strip

Q&A

  • March revenues in Vegas?
    • Volumes were good but hold was weak
  • "Having good gaming activity in Vegas in April"
  • MGM RC covenants use CC EBITDA not just EBIT to arrive at leverage calculation
  • CityCenter - no covenants there for first 18 months anyway. There are leverage covenants kicking in 3Q2011
  • Cash infusion to CityCenter from the parent later this year?
    • Depends on business activity
  • Want to get under 5x leverage over the next 5 years
  • Will use proceeds from offerings to reduce the RC outstandings
  • Players Club:  5MM have visited over the last year and visited on average 2 properties per visit (out of the 29MM in their database)
    • 40% of MGM's total slot revenues comes from their 2 MS properties and Detroit. However, they capture very little of those customers' play when they come to Las Vegas.  So they need to be smarter on their cross marketing efforts.
    • They don't currently have a tiered card... want to be more like HET - which is the gold standard of cross marketing
  • Cash balance at CityCenter & cage cash at quarter end?
    • Will not disclose
  • Baccarat volume was up 20% y-o-y, excluding Aria
  • Borgata was included in the other unconsolidated line this quarter, but going forward it won't show up on the income statement until they get a distribution from the trust upon the asset's sale.