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Best of Liz Benston

Gaming Guru

Liz Benston

MGM Mirage-Mandalay Merger Loan Approved

12 November 2004

LAS VEGAS -- MGM Mirage's lenders have agreed to loan the company $7 billion in order to finance the acquisition of Mandalay Resort Group, the company disclosed this week.

In a filing with the Securities and Exchange Commission Tuesday, MGM Mirage reported that it will use $7 billion in bank debt to finance the $7.9 billion deal. After the Mandalay transaction closes, that loan will replace an existing $2.5 billion commitment the company has with its bankers that matures in November 2008.

"This represents by far the largest bank loan ever made in the gaming industry," MGM Mirage spokesman Alan Feldman said.

When MGM Mirage sought the $7 billion banks were willing to loan the company as much as $9.7 billion, though the company is sticking to a $7 billion commitment, Feldman said.

Banc of America Securities Managing Director Bill Newby said the deal is unique because it will be accomplished using "virtually all traditional bank debt" and is "many times larger" than other financing packages of size.

Bank debt typically has much lower rates than other financing sources such as bonds. MGM Mirage has "wonderful relationships" with banks and has been able to get the same top-tier banks that typically finance gaming deals to write bigger checks than they had in the past, Newby said. Also, bankers like Mandalay's assets and are bullish on the transaction, he said.

"There's a euphoria of sorts over putting these companies together and the capital markets are absolutely white hot," he said. "It's a time to push the envelope and it's a time to do big deals."

Harrah's Entertainment Inc. and Caesars Entertainment Inc., which are simultaneously pushing forward with their own $9.4 billion merger, haven't yet disclosed details of their financing plans.

Only a handful of gaming companies have received loans in the billion-dollar range, analysts say.

Several years ago Park Place Entertainment Corp., the forerunner to Caesars Entertainment, was able to purchase Caesars World with a $3 billion bank loan. More recently, Steve Wynn raised nearly $500 million in his initial public offering of Wynn Resorts Ltd. in 2002 during a difficult year for IPOs. Wynn

Resorts stock has since generated more than $3 billion in equity value based on Wynn's track record and expectations for his $2.4 billion Wynn Las Vegas megaresort. In the filing, MGM Mirage said it may also raise additional funds using bank debt, loans or equity to finance its other proposed casino projects in Macau, China and the United Kingdom.

Separately, Mandalay Resort Group disclosed in a proxy statement Wednesday that both MGM Mirage and Mandalay have "substantially complied" with the Federal Trade Commission's requests for additional information on the proposed merger and are "still cooperating with the FTC in its ongoing investigation." The companies say they expect regulatory agencies, including state regulators, to sign off on the deal by the first quarter of next year.

Mandalay will hold a shareholder meeting Dec. 10 to vote on the merger as well as other matters, including the election of three members to the company's board of directors and the approval of the company's independent accountant.

MGM Mirage-Mandalay Merger Loan Approved is republished from