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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

MGM Mirage gets relief from vendors

18 March 2009

LAS VEGAS, Nevada -- Lenders gave MGM Mirage some much needed financial relief through the middle of May.

The casino operator, in danger of defaulting on $7 billion of its long-term debt, announced Tuesday its lenders had waived requirements that the company be in compliance of its senior credit facility covenants until May 15.

However, the company said in a filing with the Securities and Exchange Commission that auditors have raised "substantial doubt" about MGM Mirage's ability to continue, Bloomberg News reported. The auditors' comments increase the likelihood that the gaming company will need to file for bankruptcy to restructure its debts, Bloomberg said.

In its SEC filing, MGM Mirage, which operates 10 Strip casinos and is building the $9.1 billion CityCenter, said it wouldn't have been in compliance with covenants for its $7 billion bank loan facility on March 31.

"I would say the relationship (with lenders) has been extremely constructive and friendly," MGM Mirage Chairman and Chief Executive Officer Jim Murren said. "Our bank group has been with us for many years. We asked our banks to give us time to work through these issues. We have more debt than we would like given our cash flow."

The company also reported its fourth-quarter and year-end earnings Tuesday, saying the recession and a decline in consumer spending sent MGM Mirage to a net loss of $1.15 billion in the three-month period that ended Dec. 31. MGM Mirage said a $1.2 billion noncash impairment charge also affected quarterly results.

The figure translated into an earnings per share loss of $4.15 a share. A year ago, the company had a profit of $872.2 million or earnings of $2.96 share. Analysts polled by Thomson Reuters, who typically exclude one-time items like impairment charges, forecast earnings of 14 cents per share.

Revenue in the quarter was $1.8 billion, a 17 percent decrease compared with $2.11 billion a year ago.

For all of 2008, MGM Mirage had a net loss of $855.3 million or $3.06 per share. Net revenues decreased 6 percent to $7.2 billion.

"The current economic climate remains challenging, but we are still driving high occupancy at our resorts, which are in terrific shape," Murren said.

The recession has also greatly impacted MGM Mirage's ability to meet its debt covenants.

Murren said MGM Mirage struck an agreement with lenders where the company repaid $300 million in loans and will pay a higher interest rate. Also, MGM Mirage can't repurchase debt or sell any of its casinos without permission of the banks. The company can still make its required contributions to CityCenter through May 15.

"While there is still work to be done, this is a positive step that provides us with the opportunity to continue to work with our financial advisers and our bank group in addressing the company's current financial position," Murren said.

MGM Mirage said on March 3 a default on its loans could put the company's $13.5 billion in debt into default. Analysts speculated MGM Mirage could be forced into bankruptcy to reorganize its debt.

MGM Mirage Chief Financial Officer Dan D'Arrigo said the company currently has $600 million in cash on hand and is expected to add another $500 million from the sale of Treasure Island to former New Frontier owner Phil Ruffin by the end of the month. Ruffin is paying a total of $775 million for the resort.

However, MGM Mirage will need to spend just under $500 million toward construction of CityCenter by May 15. The company is still seeking $1.2 billion to complete the project.

Murren said MGM Mirage is continuing to explore several options to increase the company's liquidity, including casino sales. Murren wouldn't say which casinos are on the market, but he said offers have been turned over to the company's restructuring advisers for evaluation.

Including Bellagio, The Mirage and Mandalay Bay on the Strip, MGM Mirage owns the MGM Grand Detroit and the Beau Rivage in Biloxi, Miss.

"Collectively, we have the highest quality assets and the most desirable assets in every market," Murren said.

The company announced earnings after the stock markets closed for the day. Shares of MGM Mirage lost 20 cents or 6.19 percent in trading on the New York Stock Exchange Tuesday to close at $3.03. In after hours trading, MGM Mirage fell another 2.6 percent.