With record low interest rates, we are looking for investment opportunities in companies that can take advantage of the situation. One of our low interest rate plays is to invest in the equity of highly levered companies that are positioned to grow and repay debt over the next few years. As small investors, we do not have the wherewithal to do take-private LBO transactions like large private equity funds, but we can invest in public companies that have the characteristics of LBO transactions. These companies are not expected to be targets of LBOs themselves, since they already have high levels of debt, but patient investors may be able to generate attractive returns. The high leverage in these situations will amplify the return to equity holders, if successful outcomes are achieved.
We call these situations "Own Your Own LBO" and profiled one such situation, SUPERVALU (NYSE: SVU), here. While the SUPERVALU call was a bit early, we increased our position significantly before the recent earnings release that sent the stock up significantly. In these situations, how you invest is as important as what you invest in; more on that below. Now, on to MGM Resorts International (NYSE: MGM).
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