I don’t know – the material’s all there, so slap it on a canvas and spread it around.
Whatever you think of the poor title execution, the fact is my portfolio is up one and a half percent today on nothing but MGM Resorts International.
I’ve been rolling in this company since late 2009, like a Colombian has blow. I’ve watched it double, then cut in half, to double again, to retrace, to now. The crazy thing about this stock is that it’s been so volatile, practically everyone won, both ways. I watched some hedge fund guy make a structured derivatives bet against my own positions, which I then scaled out of for massive profits, just so that I could buy back in after the thing tanked. It’s been a fucked up roller coaster where only the slow seem to lose.
And the whole beginning owes itself to some farfetched idea on how they could cheaply restructure their debt. For those of you just joining the party, let me recap:
All casinos have a banking segment around which their floor is built, which means in addition to the gaming/resort shindig, they also have deposits and a day by day audit of how profitable their operations are. This gives them the ability to roll over all money in addition to expenses left over at the end of the day, every day. So whatever you think their borrowing costs are…they’re actually less.
What’s that, they’re borrowing for 10%? Nope, sorry jackass, it’s more like eight…
So, MGM and several of the other casinos back in the beginning of ’10 started doing just exactly that. They restructured their entire liability balance, and in the case of MGM, bought themselves a decade.
I would guarantee you that Las Vegas will experience a recovery between now and the 2020’s. And as a guy who’s spent a lot of time around statistics, between you and me, that’s doesn’t even make sense.
If Vegas should start to recover this year, I’m set. I really won’t even have to work for it after that. Think LVS, but with a different ticker. The sound and quality casinos have already made their move, so now it’s up to the distressed garbage to determine who’s surviving. And MGM is a survivor, make no mistake about that. A retarded survivor, thank to Kerkorian, but a survivor still…
If MGM starts to recover, I could just wander in here spitting vulgarities and obscene references, then maybe cuss a few of you out and split for the afternoon, every day, and I would still blow the lid off. God willing, this year, which has been slow thus far, will start to shape up.
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Cain, what market cap (in $B) would you put on them if the market starts to pickup? I need to better understand the debt situation so if you can pass me any other documentation you have on that, would appreciate it. Alternatively, I can ping you on email if required!
Thanks
Ankit
All my data comes from the SEC. Basically MGM borrowed a little over a billion and structured so that their current revenue exceeds the amount owed for any given year (with perhaps the exception of 2015). See page 9 of the latest filing, and the associated page in prior filings.
As to my statement on the ability of MGM to refinance to lower interest rates perpetually, it is easily shown best by arranging the cash flow income at a specific income time as a product of the available interest yield on a bond (US Treasury, perhaps) which pays before some allotted maturity for the company in question.
Now provided that sufficient time exists between then and maturity, assemble this and all subsequent inflows as a product of the associated yield of the day, into a series. Very similar to, say, a geometric series, except both the amounts and yield vary.
Note here that the length of the series, as well as availability of bonds that satisfy the time constraints, is determined by when the company receives cash. For a corporation like a supplier, those intervals are lump sums at staggered intervals. But for an operation like a casino, that confirmation comes daily, and thus the sequence can be constructed daily.
And, with a casino, you have the added behavior of an operation with retention of deposits and client accounts.
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