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Howard Stutz

MGM not in the clear just yet

1 May 2009

LAS VEGAS, Nevada -- 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.

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.

MGM not in the clear just yet is republished from