MGM Mirage seeks $2.5 billion in restructuring plan

MGM Mirage unveiled a four-pronged corporate restructuring plan Wednesday that will seemingly help the casino giant resolve its debt and leveraging issues without having to sell any of its Strip resorts and possibly avoid having to file for bankruptcy.

The plan allows MGM Mirage to raise $2.5 billion through a stock sale and bond offerings.

Proceeds from the transactions will be used to pay down $1.05 billion of the casino operator's $14.4 billion in long-term debt, as well as pay off a $750 million line of credit.

Sources close to MGM Mirage said the complicated financial restructuring was done with the blessings of its lenders, the company's board of directors, and billionaire financier Kirk Kerkorian, whose controlling stake in MGM Mirage will be reduced from 53.8 percent to a majority interest of 43 percent upon conclusion of the stock offering.

The news was announced before the opening of trading on the New York Stock Exchange. Just after the announcement, shares of the company fell more than 14 percent. The company's stock price, which had risen some 63 percent in value last week, closed at $8.70, down $3.70, or 29.84 percent.

"While the deal gives MGM Mirage some breathing room, we continue to believe there is not sufficient equity in the company to justify the current stock price," Susquehanna Financial Group gaming analyst Robert LaFleur told investors shortly after the deal was announced.

The debt being removed was maturing this year and had been secured by Mandalay Bay. The private placement will include notes due in 2014 and 2017 and will be secured in part by a first-priority lien on the Bellagio and The Mirage.

Company executives, including Chairman and Chief Executive Officer Jim Murren and Chief Financial Officer Dan D'Arrigo, were unavailable for comment Wednesday.

In four separate press releases, MGM Mirage revealed its plans.

The company will raise $1 billion in proceeds from a public stock offering of 81 million shares and $1.5 billion through a private placement of senior notes.

The newly amended senior credit agreement will allow the company to permanently waive any potential default from the inclusion of the term "going concern" in its 2008 and 2009 financial statements.

The going-concern qualification referred to an auditor's assessment of the company's ability to continue to operate for the foreseeable future.

"Our initial take is that, assuming the deal is completed, it removes the most severe risk today and that it will shift the MGM Mirage discussion to valuation and Las Vegas fundamentals," Goldman Sachs gaming analyst Steven Kent wrote in a research note. "This news is a modest positive in that it clearly lowers the bankruptcy risk for the company today versus yesterday."

Last week MGM Mirage said it recorded a gain in the first quarter from the $775 million sale of Treasure Island. The company also reached a financial deal with joint venture partner Dubai World to save the $8.5 billion CityCenter development.

As part of the deal, MGM Mirage's lenders had given the company until June 30 to reorganize its finances or risk defaults that would trigger a corporatewide bankruptcy.

Macquarie Securities gaming analyst Joel Simkins said MGM Mirage was still highly leveraged from a balance sheet perspective and he wouldn't rule out the company selling a Strip casino to raise more cash.

"Assuming MGM Mirage is able to successfully complete its debt and equity raising process near term, we believe the story transitions to execution (at CityCenter) as well as a recovery in Las Vegas Strip fundamentals," Simkins said.

Stifel Nicolaus gaming analyst Steve Wieczynski told investors that with Bellagio and The Mirage being used as collateral, a sale of those resorts was unlikely. However, Mandalay Bay and its adjacent properties could become purchase targets.

"Asset sales in this environment will continue to be tough as pricing is likely too depressed, making a sale unattractive currently," Wieczynski said. "The debt and equity raise should resolve 2009 capital issues."

Kerkorian, a 91-year-old Los Angeles-based investor, holds 53.8 percent of the company's 276.6 million outstanding shares through Tracinda Corp., his privately-held investment arm. Tracinda plans to purchase 8.1 million shares, or 10 percent of what is being sold through the public offering.

Even with the purchase, the additional shares on the market will reduce Kerkorian's holding in the company to 43 percent.

Dubai World, the investment arm for the Persian Gulf emirate, owns just less than 10 percent of MGM Mirage's outstanding shares, which will be reduced once the additional shares hit the open market.

Dubai World, which owns 50 percent of CityCenter, spent almost $6 billion to acquire its stake in CityCenter and MGM Mirage for roughly $80 a share in August 2007.

Dubai World has approval to acquire up to 20 percent of MGM Mirage's outstanding shares. A spokesman for Dubai World couldn't be reached to ask if the entity was going to purchase additional shares.

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