The Risk for MGM Resorts
Dec 15th 2012 3:00PM
Updated Dec 15th 2012 3:04PM
We saw during the financial crisis just how volatile gaming stocks can be. MGM Resorts was forced to sell assets in an effort to stay alive, and the company is only now recovering from those losses.
To keep you up to date with these risks and inform you of the opportunity that still lies ahead for MGM, we've created a premium report that covers everything you need to know about the stock. So if you're wondering about MGM's opportunity, risks, or leadership check out our premium report by clicking here. Here's a small excerpt to give you a sneak peek.
We've covered a lot of the upside opportunity for MGM, but the most important questions about the company surround its enormous risks.
- Crushing debt.
The single biggest risk to MGM is the company's debt load. At the end of the third quarter of 2012, the company had $14.1 billion in debt, which could crush it if economic conditions deteriorate. During the economic crisis it was this debt that forced MGM to sell Treasure Island at a fire-sale price, so we've already seen the impact debt can have. Debt isn't an immediate threat because most maturities have been pushed out beyond 2015, but the company isn't generating a lot of extra cash given its high interest payments. If conditions deteriorate by the time it needs to roll over debt, it could be in real trouble.
- Regulation... in China.
We often think of regulation as a risk to companies in the U.S., but China provides the biggest regulatory risk for MGM. A new government is currently taking shape in China and there's a very real possibility that it will somehow regulate the number of visitors or amount of money going to Macau. Gaming has grown at an incredible pace in Macau and the government might be less than thrilled about a lot of gaming money flowing to U.S. companies. It's also a dirty little secret that Macau is one of the easiest places to launder money out of China. As a result, if the government tries to clean up corruption, Macau could actually take a sizable hit.
- The U.S. economy.
You might be sensing a theme that U.S. economic growth is absolutely crucial for MGM's financial health. Even a shallow recession would expand losses at the company and could threaten its already fragile balance sheet. It's a death spiral that would start with declining revenue and EBITDA, which would lead to higher borrowing costs and a never-ending decline for MGM. A faltering U.S. economy is a huge risk for the company.
MGM's debt position has put it in a precarious position that requires general economic growth in both the U.S. and China with little room for error.
The article The Risk for MGM Resorts originally appeared on Fool.com.Fool contributor Travis Hoium and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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