An announcement today that MGM Mirage (MGM) tapped into its revolving line of credit to borrow $842 million for general corporate purposes led three credit rating services to devalue the company’s bonds and sent the casino operator’s stock price to an all-time low.
In a filing with the Securities and Exchange Commission, the company said the borrowing was done “in light of the continuing instability in the capital markets and uncertain state of the global economy.”
MGM Mirage has $4.5 billion in its revolving credit facility.
MGM Mirage spokesman Alan Feldman said the money would be used as “operating funds.”
Shares of MGM Mirage fell to a historic low on the New York Stock Exchange Friday based on the filing, closing at $3.50, down 95 cents or 21.35 percent, analysts said. The stock price fell nearly 26 percent at one point during the day.
Standard & Poor’s lowered its corporate credit and issue-level ratings on MGM Mirage, citing concerns about the casino operator’s debt covenants.
“The downgrade reflects heightened concerns around MGM Mirage’s liquidity position and our expectation for meaningful deterioration of credit measures over the next several quarters,” S&P credit analyst Ben Bubeck said in a note to investors.
Fitch Ratings also lowered its ratings for MGM Mirage, citing similar concerns.
“The downgrade reflects MGM’s credit facility draw in the context of the company’s strained liquidity position and the continued expected deterioration of Las Vegas operating trends,” Fitch analyst Michael Paladino said in an investors note.
Toward the end of the day Moody’s downgraded its view of MGM Mirage.
“Moody’s estimates that internally generated cash, net proceeds from the pending sale of Treasure Island together with the revolver draw and cash on hand will be barely sufficient to fund the company’s operations, including its CityCenter obligations, and required bond maturities through year-end 2009,” the ratings agency said in a statement.
Much of the gaming industry has undertaken cost-cutting measures over the past 14 months as declining gaming revenues have sapped profits. MGM Mirage, which currently operates 10 Strip casinos, cut staffing levels and has instituted other cost reductions. In December, the company announced plans to sell Treasure Island to former New Frontier owner Phil Ruffin for $775 million.
But the company’s biggest challenge is finding the remaining $1.2 billion in financing for the massive $9.1 CityCenter development, which is opening in October.
Feldman said some of the money borrowed this week could find its way into the current construction costs for CityCenter, since MGM Mirage is funding some costs out of corporate funds.
Earlier this week, it was reported that MGM Mirage and Deutsche Bank were in discussions that could give the casino company additional financing it needs to complete CityCenter in exchange for operating or taking ownership of the troubled Cosmopolitan project.
CityCenter is a 50-50 joint venture between MGM Mirage and Dubai World, the investment arm of the Persian Gulf state. MGM Mirage, the managing partner in the project, has been paying its share of the project with company cash flow.
Deutsche Bank, which acquired the Cosmopolitan for $1 billion at a foreclosure sale in August, has been in discussions with companies to operate the $3.9 billion project, which is scheduled to open in the second quarter of 2010.
According to sources who talked to the Review-Journal, Deutsche Bank would provide MGM Mirage with up to $700 million to complete CityCenter. In turn, MGM Mirage would either operate the Cosmopolitan, which sits on 8.5 acres bordering CityCenter, or take over the project in exchange for giving Deutsche Bank an equity stake in CityCenter.
Contact reporter Howard Stutz at firstname.lastname@example.org or 702-477-3871.