Author Home Author Archives Search Articles Subscribe
Stay informed with the
NEW Casino City Times newsletter!
Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter!
Related Links
Related News
Recent Articles
Rod Smith

MGM Mirage Ducks IPO

17 September 2004

LAS VEGAS -- Defying its own expectations and those of Wall Street, MGM Mirage now expects to cover its $7.9 billion bet on Mandalay Resort Group entirely with bank borrowing, saving the company tens of millions of dollars a year in the process.

MGM Mirage President Jim Murren told Wall Street investors and analysts this week that the reaction in capital markets to his company's offer to buy out its giant Strip competitor has been so positive that it plans to finance the deal with bank debt and save the time and expense in going to market with a public stock offering as expected.

"The (bank) capital markets are extremely favorable and very receptive to us. They're also very strong (right now) in a general sense," he said.

Merrill Lynch analyst David Lynch, who hosted the private meeting with Murren, said the likely availability of cheap bank debt probably excuses MGM Mirage from issuing new stock to help fund the acquisition.

"The most surprising aspect is that the bank market would be so accommodating. According to several bank lenders we spoke with, the bank market is 'starved' for new (lending) and MGM management is likely to use that to its advantage," he said.

"The banks seem willing to finance on an unsecured basis despite the increase in leverage associated with the transaction and a likely one notch downgrade by the credit rating agencies," Anders said.

Murren said talks with bankers have indicated they have more capacity than he expected in June when the merger was announced.

"And the bond market is stronger (and) rates are lower. We had expected to put equity in as a necessity, but it's not going to be required," he said.

Eric Hausler, gaming analyst for Susquehanna Financial Group, said Wall Street's positive reaction to the deal is based partly on the strength of MGM Mirage's management team and the high quality of its properties.

"It's a great company and its debt overall has always been seen as good paper. That means a lot to the people who will be lending them money," he said.

Further, while Murren said he would be very comfortable with the projected debt-to-cash flow leverage rate of 5.7, Hausler said the leverage rate involved may be lower than now predicted when the deal actually closes because both MGM Mirage and Mandalay have the free cash flow to tackle paying down debt now.

Deutsche Bank analyst Marc Falcone said the power of MGM Mirage's reputation and the strength of the money markets are working in tandem to simplify and cut the cost of financing the MGM Mirage-Mandalay merger.

"Certainly, the bank market is very hot right now and there's a lot of demand for a company as strong as MGM (Mirage) with its (pending) merger," he said.

Bank financing will make the merger much more accretive, effectively meaning earnings per share would be higher after the deal is done than they would be if the financing was not available, Falcone said.

The use of bank financing would require taking out a substantial amount of MGM Mirage debt financing, but Murren said his company is saving substantial amounts on the debt it is refinancing because it is floating bonds at 5.5 percent, rather than paying the 7 percent he expected.

Falcone said the bond market has firmed up since the MGM Mirage merger was announced, and at those kinds of rates they "might want to be financing all day long" because they are so favorable for the company.

Murren also said the ability to finance the merger with bank borrowing while avoiding the expensive processing of registering a public stock offering with the Securities and Exchange Commission could ultimately save MGM Mirage time in completing the buyout.

"The timing primarily is being set by the regulatory requirements, but (bank financing) certainly relieves an awful lot of pressure. It makes my job easier from the perspective of putting together the total capital structure," he said.

Murren said overall the merger between MGM Mirage and Mandalay is on track to close by the end of the first quarter of 2005 as expected.

Murren also said his company is keeping its options open to future stock offerings to finance expansion plans.

Shares of MGM Mirage dropped 2 cents Thursday to close at $45.78 on the New York Stock Exchange. Shares of Mandalay Resort Group dropped 7 cents to close at $68.03.

MGM Mirage Ducks IPO is republished from