MGM Resorts International (NYSE:MGM) and Wynn Resorts (NASDAQ:WYNN) will mull new, large-scale development opportunities around the world. That could result in the operators taking on significant debt, according to Moody’s Investors Service.
The research firm made the comments as part of fresh credit reviews of the gaming companies. Moody’s has “Ba3” grades on both gaming companies’ credit ratings or three notches into junk territory. Ratings weren’t altered as part of the periodic evaluation.
That’s not a surprising assessment, given that the Bellagio operator has a long-held interest in developing an integrated resort in Osaka, Japan. MGM’s front-runner status in the country’s third-largest city was recently cemented when a request-for-proposal (RFP) deadline for other companies to enter the fray came and went with no new entrants.
The largest operator on the Las Vegas Strip, MGM’s international operations currently consists of MGM China — the Macau business in which the US company owns 56 percent. That enterprise controls two integrated resorts in the world’s largest gaming center. Aside from Japan, the Mandalay Bay operator hasn’t been tied to new international land-based casino projects.
Moody’s expects Wynn will also pursue fresh opportunities in the US and abroad as an avenue for diversifying its Macau-heavy revenue stream.
“We also expect that Wynn will be presented with and pursue other large, high profile, integrated resort development opportunities around the world,” said the research firm. “As a result, there will likely be periods where the company’s leverage experiences periods of increases due to partially debt-financed, future development projects.”
Wynn adding another property to its roster doesn’t have to occur outside the US or via acquisition. The company is rumored to be a credible contender to develop new gaming venues in Chicago and New York.
Analysts estimate that Japanese integrated resorts will cost $10 billion to $15 billion to build. Even at the low end of that range, that’s high enough to mark the most expensive gaming property ever constructed.
MGM is partnering with Japanese conglomerate Orix, which will defray some of its upfront cost exposure. That’s a positive because its leverage is likely to be high for another year or so.
“As a result of a slow expected recovery in Las Vegas and Macau, MGM is weakly positioned at the Ba3 level, as leverage is expected to remain elevated for at least the next year,” adds Moody’s.
In the Mirage operator’s favor is its cash stockpile of more than $7 billion, and its ability to efficiently raise capital by further paring its stake in MGM Growth Properties (NYSE:MGP).