Morning Commentary: MGM jumps amid lodging spinoff chatter; energy names mostly quiet

By Rebecca Melvin

New York, March 17 – MGM Resorts International’s convertibles jumped in active trade early Tuesday, as did the underlying shares of the Las Vegas-based casino operator, amid chatter about Land and Buildings’ push to have MGM convert into a real estate investment trust and spin off its real estate assets.

MGM’s 4.25% convertibles due April 15, 2015 jumped back up to more than 115.7, which was up more than 8 points, on Tuesday, according to Trace data. That level is up from about 107 – a level to which the bonds have slipped in recent sessions ahead of the upcoming maturity in less than a month.

MGM shares rose $1.78, or 9%, to $21.43.

Land and Buildings, an activist fund, said the spinoff plan also includes reducing leverage through asset sales and paying a MGM China special dividend. These moves would unlock net asset value by as much as 70%, and send MGM shares higher.

“We strongly believe the U.S. real estate of MGM (MGM REIT) is worth $25 per share alone, more than the entire MGM share price today of $19.41,” Land and Buildings said in its presentation.

Elsewhere, Goodrich Petroleum Corp.’s 5% convertible due 2032 traded down 0.375 point to 52.375. But most energy convertibles were quiet in the early going despite another drop in crude oil prices.

West Texas Intermediate crude oil for April delivery was down 89 cents, or 2%, to $42.99 per barrel.

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