A group of four banks led by Citigroup faces a loss of nearly $ 100 million after selling part of a loan guaranteed by two Las Vegas casinos, a sign that the banks are eager to dispose of the assets affected by the pandemic, even with big discounts.
Citi, Deutsche Bank, Barclays and Societe Generale loaned $ 3 billion to MGM Growth Properties – owner of MGM Grand and Mandalay Bay casinos on the famous Las Vegas Strip – in February, shortly after MGM sold 49.9 % ownership of properties in Blackstone, according to regulatory filings.

The four banks intended to use the loan to support a $ 1.9 billion deal in the commercial mortgage-backed securities market, but a strong sale triggered by the Covid-19 epidemic shocked these plans, according to people familiar with the agreement.

Instead, banks sold the two lowest-rated tranches of a revised deal to investors with a big discount this week.

The triple B-rated debt tranche priced at 83 cents on the dollar while the riskier, double-rated B tranche only returned 77 cents, according to people. Together, the tranches amounted to $ 534 million. This equates to a loss to the banks of approximately $ 99 million on the face value of the debt.

Citi has written 40% of the original loan on its balance sheet, while the other banks have each taken a 20% share, according to two people familiar with the arrangement.

Banks still have close to $ 2.5 billion of original loan on their balance sheet and hope to sell the highest rated tranches of the CMBS deal once markets stabilize and economic conditions improve, said people familiar with the plans.

The lowest rated CMBS tranches are generally sold at a discount, offset by a premium received on the highest rated tranches. But investors and those involved in the MGM deal said the banks’ chances of recovering the total amount lost during this week’s sale are slim.

“At this point, the loan was made, so the damage was done,” said a banker involved in the transaction.

The bankers also noted that the original loan may have been hedged to offset the risk of a fall in value, but did not provide further details.