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Debt of Mirage, MGM Grand Under Review

Chicago-based Duff & Phelps Credit Rating Co. placed Mirage Resorts on ratings watch with a "down" outlook. The action affects $950 million in Mirage Resorts senior debt, which currently carry an investment-grade rating of "BBB."

Duff & Phelps said it did not believe MGM Grand could maintain an investment-grade rating on this debt if it acquired Mirage Resorts in an all-cash deal. MGM Grand offered to pay $17 per share, either in an all-cash transaction or a combination of cash and stock. The company would also assume more than $2 billion in Mirage Resorts debt.

"While the proposed cash-and-stock combination could preserve (Mirage Resort's) ratings at an investment grade level, an all cash transaction, if consummated, would result in an entity with roughly $7 billion in debt ... which would more than likely result in a ratings downgrade below investment grade."

Such debt levels would be more than 6 times the cash flow of the combined company, Duff & Phelps said.

Separately, Moody's Investors Service placed MGM Grand under review for possible downgrade, affecting about $1.75 billion in MGM Grand debt.

Moody's said it "will focus on the capital structure post acquisition and its impact on the debt protection measures of MGM, potential synergies which may be achieved from the combination, future capital requirements as well as the added diversification of the combined entities."

MGM Grand currently carries a "Baa3" rating from Moody's.

In separate moves, analysts at Robertson Stephens and Schroder & Co. sliced their ratings on Mirage Resorts. Robertson Stephens cut its rating from "long-term attractive" to "market performer," while Schroder & Co. dropped its rating from "outperform" to "perform-in-line."

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