CASINOS IN CRISIS: MGM not home free yet, analysts say - Business

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May. 01, 2009
Copyright © Las Vegas Review-Journal

CASINOS IN CRISIS: MGM not home free yet, analysts say

Casino company gets second waiver after deal

By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL

MGM Mirage may have rescued its massive CityCenter development from a potential bankruptcy, but saving the company from a similar fate is another matter.

That was the assessment of Wall Street a day after the casino operator and its joint venture partner, Dubai World, agreed to a comprehensive plan to fully fund and complete the $8.5 billion CityCenter.

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Analysts believe MGM Mirage still needs to sell off one or several of its nine Strip casinos or its some of its resort holdings outside of Las Vegas in order to address its liquidity issues surrounding the company's $13.5 billion in long-term debt.

As part of the deal reached to finance and finish City Center, MGM Mirage received a second waiver of the company's financial covenants from its lenders. MGM Mirage now has until June 30 to come up with a restructuring plan.

MGM Mirage had faced a May 15 deadline to restructure its finances or risk defaults that could have triggered a companywide bankruptcy.

Deutsche Bank gaming analyst Andrew Zarnett said investors were expecting a hotel-casino sale Wednesday when word leaked that MGM Mirage was planning an announcement of a significant material nature and trading was halted on the New York Stock Exchange.

"We believe that the waiver extension provides MGM Mirage with some breathing room, albeit short, to seek restructuring alternatives such as asset sales in order to reduce debt and thwart bankruptcy," Zarnett told investors. "At this juncture, concerns regarding the near term maturities (due in July and October) and the deteriorating fundamentals in Las Vegas continue to linger."

In an interview Wednesday, MGM Mirage Chairman and Chief Executive Officer Jim Murren said potential asset sales draw the most attention, but the company has other options at its disposal in order to resolve its debt issues.

Murren didn't rule out a corporate bankruptcy filing.

"In this day and age that we live, there are no options to discount," Murren said. "Bankruptcy can be a good path for some companies, although it's not the desired outcome. It's not our objective in our portfolio of ideas."

Investors were happy that MGM Mirage alleviated the CityCenter funding concerns. The company's stock opened nearly 60 percent higher on the New York Stock Exchange and was one of the day's most actively traded shares.

MGM Mirage ended Thursday at $8.38, up $2.20, or 35.6 percent. Almost 72.5 million shares were traded, nearly six times the average daily volume.

Susquehanna gaming analyst Robert LaFleur was surprised at the increase.

"This makes no sense to us," LaFleur told investors. While MGM Mirage has addressed some near-term issues and has bought itself time until June 30, the much bigger picture remains. Does MGM's equity have any value? The simple fact of avoiding bankruptcy does not automatically accrue value to your stock."

In its deal to fund City Center, MGM Mirage gave the project's lenders a lien on Circus Circus in Las Vegas and its corporate lenders a security interest in the Gold Strike Casino in Tunica, Miss., some Strip land, and a portion of the MGM Grand Detroit.

Goldman Sachs gaming analyst Steven Kent said the deal was a good first step, but MGM Mirage still has a multitude of issues to deal with.

"MGM Mirage's announcement gives the company more time to sell assets in an attempt to deleverage or work through another solution with the banks," Kent said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Silly MGM wrote on May 01, 2009 11:55 PM: Let Wynn take back Bellagio and Mirage, he will do it right. Who's laughing now Kirk? Leric Goodman wrote on May 01, 2009 09:18 PM: What is it with MGM? For the corporation, Chapter XI would be a GOOD thing. They could cram down their unsecured debt and probably emerge sell a property or two and emerge roaring, profitable and with strong positive cash flow. Avoiding Chapter XI is not a good thing for MGM. Only the controlling shareholder benefits. Zak wrote on May 01, 2009 08:45 PM: They (MGM) are trying to hold off on selling some strip properties. They will sell them soon. There is just too much debt to pay back. Kerkorian has made some bad investments. Look how he put a billion dollars into Chrysler! This company needs to reorganize. Wynn is licking his chops'. He will snap up some of their property. Wynn is the smartest dude in gaming! resident wrote on May 01, 2009 05:37 PM: F@ck MGM Greg wrote on May 01, 2009 11:33 AM: MGM STRATEGIC BUSINESS MODEL under Jim Murren, and former Chairman Terrence J. Lanni, since Congressional legislation in 1999 and subsequently in 2003 by Republican majority Congress to deregulate lenders and dirivs: 1. Build or Buy 2. Short staff employees, contracting (either by contracting, out or through attrition) the Customer Experience 3. Raise Executive Compensation 4. Return to Step One, Start Over Fortunately, there are people of influence and competitive advantage in the marketplace in Nevada and abroad who understand. So, competitive pressures will remain on the company into the future. 13 billion of debt for MGM Mirage Corporation, beyond City Center financing, can and will be reduced, "perhaps" to a manageable level acceptable to all vested parties, "perhaps" without a future filing, through the sale of excellent revpar rooms to direct competitors who are licensed. The truth is revpar is the most "connecting", straight line industry indicator to "get out the measuring stick" for both employee experience and customer experience. The proof will be in the pudding, as the future unfolds. jr wrote on May 01, 2009 11:30 AM: They are risking the whole company on this terrible project. How is increasing the glut of rooms and condos going to help with their bottom line? Does any one think that they are going to be able to finish with the 8.5 billion that's budgeted? From 9.2 to 8.7 to 8.5,that's how it's gone in the last few months. After they get done fixing the defects, it wil probably be back over 9. If the economy does not pick up in the next 6 months, we'll see mgm in bankruptcy. Robert Bonzetti wrote on May 01, 2009 10:58 AM: I looked at the proposed sizes and prices at the CityCenter condos a few days ago. I just don't see how they're going to sell them at those prices. They were estimating $1500/sq. ft. for the Mandarin. That's obscene. I want this to be a huge success, but I fear it will be a boondoggle. ET wrote on May 01, 2009 08:38 AM: The good news,had you bought MGM,one month ago at 2.00 when Obama said too buy,your smile is bright.It's at $ 8.00 today.However it's a Rollacoaster,not for the weak at heart. jose wrote on May 01, 2009 06:22 AM: it is better not to be say gay. Out of the Pan and Into the Fire wrote on May 01, 2009 05:27 AM: "Under terms of the new CityCenter joint venture agreement, MGM will be responsible for completion costs if net proceeds from the sale of condominium units are less than $243 million and for any expenses in excess of the budgeted $8.5 billion." In other words, Dubai ordered MGM to go find 243 deaf, dumb and blind Millionaires and sell them a Condo in a Building that has nothing but FATAL FLAWS in its entirety. From TOP to BOTTOM. Nevermind the 21 floors they "lopped" off the top of The Harmon, because the union rodbusters sabotaged the first 15 floors by not following the plans. Now all the glass connections are flawed. No Flashing installed. Don't lean on it! Do really think the County would sent them a NOV if there was nothing DEADLY WRONG? Not on your life. The flaws that I mention above are the TIP OF THE ICEBERG. They only way Clark County Building Inspectors EVER find a code violation is if they accidently trip over it, bang their head on it, or lastly - if Fred Frazzetta gets a phone call from an insider - shows up and rubs their nose in it. Other than that, EVERYTHING is PERFECT! Inspector Mellencamp's music is already blaring through the City Cemetary ..."And the walls, came tumblin' down." Forget about all the orders to fix the flaws. Those have been sittin on the County's desk for YEARS. If not for Joan Whitely, we wouldn't even know about them. 2 last points. MGM has to pay to fix EVERYTHING over the 8.5 Billion Dollar budget. They better chop another building in half, QUICK! That's the ONLY WAY that's going to happen. P.S. Can you say LAWSUITS? Millions, if not Billions in Construction Defect Lawsuits. Conspiracy Theory? Guess again.