itch cut its rating on the company’s issuer default probability, senior notes and senior credit facility to "BB-" from "BB" and trimmed its rating on senior subordinated notes to "B" from "B+". All ratings are considered non-investment or junk grade. The outlook remains "Negative," meaning further downgrades could be in the cards.
"The downgrade reflects the fact that broad economic trends have continued to weaken, along with Las Vegas operating trends," the ratings agency said in a statement. Gambling revenue on the Las Vegas Strip is down 6.7 % year-to-date, hotel room rates have declined 7.7 %, and visitation is down 1.5 %, it said.
Third-quarter trends are even worse, Fitch said. If MGM properties on the Strip, which include the Bellagio, MGM Grand and Treasure Island, continue to show double-digit operating profit declines, "Fitch may downgrade MGM further," it said. Credit Suisse analyst Scott Barry initiated coverage of the company with a "Neutral" rating and price target of us$ 15.
The company faces multiple "fundamental headwinds" including weaker consumer spending and a 6.9 % annual growth in room supply through 2012, he wrote in an analyst note. "Despite a favorable long-term shift in strategic emphasis toward monetizing existing assets, MGM is still essentially a pure-play on the Las Vegas Strip," he wrote. He forecast earnings before interest, taxes, depreciation and amortization to decline 18 % to us$ 2.08 billion this year and 7 % to us$ 1.94 billion in 2009.