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Feb. 27, 2009
Copyright © Las Vegas Review-Journal

MGM Mirage borrows $842 million from its revolving credit line

By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL

An announcement today that MGM Mirage (MGM) tapped into its revolving line of credit to borrow $842 million for general corporate purposes led three credit rating services to devalue the company’s bonds and sent the casino operator’s stock price to an all-time low.

In a filing with the Securities and Exchange Commission, the company said the borrowing was done “in light of the continuing instability in the capital markets and uncertain state of the global economy.”

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    • MGM Mirage has $4.5 billion in its revolving credit facility.

    MGM Mirage spokesman Alan Feldman said the money would be used as “operating funds.”

    Shares of MGM Mirage fell to a historic low on the New York Stock Exchange Friday based on the filing, closing at $3.50, down 95 cents or 21.35 percent, analysts said. The stock price fell nearly 26 percent at one point during the day.

    Standard & Poor’s lowered its corporate credit and issue-level ratings on MGM Mirage, citing concerns about the casino operator’s debt covenants.

    “The downgrade reflects heightened concerns around MGM Mirage’s liquidity position and our expectation for meaningful deterioration of credit measures over the next several quarters,” S&P credit analyst Ben Bubeck said in a note to investors.

    Fitch Ratings also lowered its ratings for MGM Mirage, citing similar concerns.

    “The downgrade reflects MGM’s credit facility draw in the context of the company’s strained liquidity position and the continued expected deterioration of Las Vegas operating trends,” Fitch analyst Michael Paladino said in an investors note.

    Toward the end of the day Moody’s downgraded its view of MGM Mirage.

    “Moody’s estimates that internally generated cash, net proceeds from the pending sale of Treasure Island together with the revolver draw and cash on hand will be barely sufficient to fund the company’s operations, including its CityCenter obligations, and required bond maturities through year-end 2009,” the ratings agency said in a statement.

    Much of the gaming industry has undertaken cost-cutting measures over the past 14 months as declining gaming revenues have sapped profits. MGM Mirage, which currently operates 10 Strip casinos, cut staffing levels and has instituted other cost reductions. In December, the company announced plans to sell Treasure Island to former New Frontier owner Phil Ruffin for $775 million.

    But the company’s biggest challenge is finding the remaining $1.2 billion in financing for the massive $9.1 CityCenter development, which is opening in October.

    Feldman said some of the money borrowed this week could find its way into the current construction costs for CityCenter, since MGM Mirage is funding some costs out of corporate funds.

    Earlier this week, it was reported that MGM Mirage and Deutsche Bank were in discussions that could give the casino company additional financing it needs to complete CityCenter in exchange for operating or taking ownership of the troubled Cosmopolitan project.

    CityCenter is a 50-50 joint venture between MGM Mirage and Dubai World, the investment arm of the Persian Gulf state. MGM Mirage, the managing partner in the project, has been paying its share of the project with company cash flow.

    Deutsche Bank, which acquired the Cosmopolitan for $1 billion at a foreclosure sale in August, has been in discussions with companies to operate the $3.9 billion project, which is scheduled to open in the second quarter of 2010.

    According to sources who talked to the Review-Journal, Deutsche Bank would provide MGM Mirage with up to $700 million to complete CityCenter. In turn, MGM Mirage would either operate the Cosmopolitan, which sits on 8.5 acres bordering CityCenter, or take over the project in exchange for giving Deutsche Bank an equity stake in CityCenter.

     

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

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    ruffus327 wrote on February 28, 2009 10:13 AM: We are a group on COSMO Unit Holders whop have filed a class-action to get our depositis back from this troubled project and poor investment. This is NOT the Robin Leach law-suit - we filed BEFORE he did. If interested to join us send me an email to me at ruffus327@aol.com. Do not hesitate!Thanks!


    Cynical Observer wrote on February 28, 2009 12:26 AM: I'm thinking that the bank or banks who were liable to make advances to MGM Mirage on its line of credit were/are at risk of failing. This weeks Wall Street press has been filled with discussion of Citigroup being at death's door.

    I know many people who had Washington Mutual lines of credit secured by second liens on their houses. They saw that WaMu was going to fail and drew down the money remaining available. Why should MGM Mirage be any different?

    The RJ should take better care in writing about the "unfilled need" to find a source for additional financing to complete City Center. I've seen it reported that the owners of City Center have enough cash to fund the construction themselves. I've also seen an article reporting that they secured financing from a commercial lender. Every time someone claims that there are problems financing the completion of City Center, when that claim may not be true, Las Vegas' image is harmed. Get your facts straight RJ, and report them consistently!


    casinocon wrote on February 27, 2009 10:51 PM: Dum dum dum dum . . . DUM!!! The party's over . . . it's time to call it a day. The moronic analysts finally start seeing the light, MGM is drawing on their credit for the same reason Stations did -- the are one the VERGE OF BANKRUPTCY -- all Casino Corps in this situation, and there are a few, should be forced to LIQUIDATE!!! Hey, I personally had to sell off some of my most prized personal possessions to stay afloat and the Casino Corps should be no different. It is a fire sale in Vegas! Sin City BURNS!!! The Wages of Sin are DEATH!!! Remember the good old days when you could stay and play on $50 a day? If Michael Gaughan still has any money he needs to buy some of his casinos back.


    D wrote on February 27, 2009 07:17 PM: MGM and Harrahs need to sell off some assets and focus on a few core properties. make the business fun and profitable again. Overcapacity like the Auto Industry dont work anymore.
    Make the pie smaller and enjoy your portion.


    I miss the early 2000s wrote on February 27, 2009 06:51 PM: Signs of apocaplyse in Vegas:
    City Centre breaking the bank at MGM Mirage.
    The hole formerly known as Echelon.
    $50 for 2 vodka and Red Bulls.
    $3-$4000 for table service at a club.
    Boyd bidding for Station when they've taking on water like the Titantic.



    AP wrote on February 27, 2009 06:34 PM: The condo component of Citycenter will never sell. This project is in BIG trouble.


    fred t wrote on February 27, 2009 05:22 PM: Wow. Bet Dubai, who are in their own financial freefall, wish they had never heard of Las Vegas. Look at it this way-what do you do with empty casinos and hotels? This could become General Motors West. Getting bad kids, don't quit the day job...


    VegasSmitty wrote on February 27, 2009 05:09 PM: If the MGM folds, it would be the best thing that happened in Vegas. It should be one casino one owner, let competition rule the strip, not the MGM and there cohorts.