MGM in hunt for financing after talks collapse

It's back to square one for MGM Mirage.

After discussions with Deutsche Bank collapsed late Wednesday, the cash-strapped casino operator will have to look elsewhere for the final $1.2 billion in financing needed to complete its $9.1 billion CityCenter development.

The news, coupled with MGM Mirage's announcement Tuesday that it could default on its $7 billion senior secured credit facility and be labeled a "going concern" by its independent accountants, didn't sit well with Wall Street. Speculation about the financial health of the Strip's largest casino operator widened.

"We stayed positive on MGM Mirage since we believed the company had more options at its disposal to navigate through this economic downturn versus its peers," Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said in a note to investors. "Concerns as to what it will do in order to ease liquidity continue."

MGM Mirage spokesman Alan Feldman said the company would "pursue options that are far better than Deutsche Bank presented" in obtaining financing for CityCenter, which it owns in a 50-50 joint venture partnership with Dubai World, the investment arm of the Persian Gulf state.

Deutsche Bank reportedly wanted MGM Mirage to operate or take an ownership stake in the unfinished $3.9 billion Cosmopolitan project, which is being built on an 8.5-acre site between CityCenter and Bellagio.

Deutsche Bank, which acquired the Cosmopolitan for $1 billion at a foreclosure sale, has been seeking an operator for the project. A spokesman for Deutsche Bank declined comment.

The company said a default on its credit line could lead to a default on its entire $13.5 billion debt load. MGM Mirage delayed its year-end earnings report until March 17 and is negotiating with its lenders to seek better repayment terms. Some analysts believe the company could be forced into bankruptcy to restructure its debt. Others believe the company has many options to pursue.

Shares of MGM Mirage sank to never-before-seen lows Thursday. The price per share closed at $1.89 on the New York Stock Exchange, down 32 cents or 14.48 percent.

Macquarie Securities gaming analyst Joel Simkins said MGM Mirage's financial woes have the potential to drag down the rest of the gaming sector. He thought the company would have been successful in finding CityCenter funding late last year but credit has tightened in the past six months.

"While there is always a possibility that MGM Mirage could pull off a miracle near-term, we think that the capital markets remain closed to the company and that lenders will force the company into a restructuring given its concentration in Nevada, a market we believe will remain depressed for at least a few years," Simkins said in an investors note.

MGM Mirage owns 10 Strip casinos but is selling Treasure Island for $775 million. The deal is expected to close at the end of the month. The company is reportedly shopping other Strip assets, including hotel-casinos in Detroit and Mississippi.

One analyst, who asked not to be named, said the company could resolve about $2.1 billion in debt issues that come due in 2009 and 2010. CityCenter remains the largest matter on the horizon; resolving the last piece of financing would alleviate concerns about MGM Mirage.

The 76-acre project, which includes the 4,004-room Aria hotel-casino, multiple nongaming hotels, high-rise residences, and a large entertainment, retail and dining complex, is expected to begin opening in October.

On Wednesday, MGM Mirage Chief Financial Officer Dan D'Arrigo tried to assure the Gaming Control Board the company had bolstered its financial position. MGM Mirage's balance sheet now has approximately $1 billion in cash. He said the potential default didn't affect continuing construction work at CityCenter.

Also, MGM Mirage Chairman and CEO Jim Murren sent a six-paragraph e-mail to MGM Mirage's 65,000 workers Tuesday, trying to assure employees that the company's business health was sound.

"We are continuing to operate our properties and deliver the service and experience that our guests and clients have come to expect," Murren wrote. "Our operations, while impacted by the downturn in the national economy, remain profitable."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.