Wall Street seems sure MGM can cut debt

Raising almost $517.4 million through a stock sale may not seem like a huge amount of money when you're facing a daunting debt of $13 billion.

But Wall Street was quick to point out Wednesday that MGM Resorts International has other means at its disposal to reduce the company's leverage.

In a filing with the Securities and Exchange Commission, the Las Vegas-based casino operator said it priced the 40.9 million shares it released to the open market on Tuesday at $12.65 per share on the New York Stock Exchange. MGM Resorts hopes to raise almost $517.4 million through the sale, but the market didn't have an immediate positive reaction.

Company shares were down 9 percent Wednesday at the market's outset and never recovered, closing at $12.10, down $1.51, or 11.09 percent. More than 155.4 million shares -- about seven times normal volume -- were traded Wednesday.

Wall Street analysts weighed in Wednesday, saying the stock sales coupled with other items should help MGM Resorts eliminate the debt that is coming due in 2011.

In addition to the stock sale, MGM Resorts is expected to pick up a little more than $250 million from the sale of its 50 percent ownership in the Borgata in Atlantic City. Once that sale is completed, the company will add another $114 million in cash that is being held in a trust account covering its stake in the hotel-casino.

MGM Resorts will also collect $71 million for the sale of the land underneath the Borgata.

Meanwhile, the company expects to collect about $125 million in cash on a loan repayment from the MGM Grand Macau this month. A planned initial public offering on the Hong Kong Stock Exchange by the end of the year could raise $350 million to $500 million.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the company could have about $1 billion for paying down debt.

"While $1 billion is just a dent in the company's debt profile, we believe it's the first of many steps to getting MGM Resorts back on solid footing," Wieczynski said.

Analysts said the company would have needed shareholder approval to increase the size of the stock sale. Some said investors were concerned because the shares dilute the number of shares now available. Bloomberg News estimated the stock offering increases MGM Resorts' outstanding shares by 9.3 percent.

Wells Fargo Securities gaming analyst Carlo Santarelli said the banks holding MGM Resorts' debt probably support the company's various moves.

"Despite lofty leverage and some near-term debt maturities, we were never under the impression that banks wanted to own MGM Resorts and as such, we didn't believe the equity would ever be worthless," Santarelli told investors. "If we assume all proceeds are used to pay down debt, we believe MGM Resorts has effectively covered all of its maturities, including its mandatory pay-downs on its term loan and revolver, through 2012."

Analysts, however, were concerned about a secondary announcement that Los Angeles billionaire Kirk Kerkorian, the company's founder and largest shareholder, was selling shares. Kerkorian, 93, placed almost 28 million shares of MGM Resorts that he owns through Tracinda, his private investment arm, on the open market.

Tracinda now holds more than 163 million shares of MGM Resorts, or 37 percent of the company's outstanding shares.

Kerkorian could raise more than $351.4 million through the proposed sale.

"The intended stake sale by Tracinda is not positive for the story," Jefferies & Co. gaming analyst David Katz told investors.

Susquehanna International Group gaming analyst Rachael Rothman said the Tracinda listing suggests "the lack of conviction in a near-term Las Vegas rebound."

Barclays Capital is the sole underwriter of the transaction that is expected to close on Monday.

MGM Resorts and Tracinda granted the underwriter a 30-day option to purchase up to an additional 6,135,000 shares and 4,167,300 shares, respectively, to cover overallotments, if any.

In a statement, MGM Resorts International said the company will not receive any proceeds from the sale of Kerkorian's stock.

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