MGM Mirage puts Detroit, Mississippi properties up for sale

MGM Mirage has officially put the company's resorts in Detroit and Biloxi, Miss., on the market.

The casino operator hired Wall Street investment firm Morgan Stanley to evaluate sales offers for the MGM Grand Detroit and the Beau Rivage, which could fetch the company between $1.5 billion and $2 billion, according to analysts.

The potential sales, if completed, would help MGM Mirage resolve some of the company's liquidity issues surrounding some $13.5 billion in long-term debt, which is looming over the casino operator's balance sheet.

One gaming analyst believes MGM Mirage is under pressure from its lenders, who gave the company a two-month stay from meeting covenants on its debt obligations, to sell the two resorts.

"The May 15th date is looming and the banks may be pushing this," Joe Fath, a gaming analyst for fund manager T. Rowe Price said Monday. "Both these assets are relatively new and stable. They are also considered noncore assets and they have obviously attracted some interest."

Fath thought the casinos could be sold for a price about seven times cash flow, a similar multiple MGM Mirage used in selling Treasure Island last month to Phil Ruffin for $775 million. He said several publicly traded gaming companies, such as Penn National, could be interested, along with a number of private equity groups and private investors.

Deutsche Bank gaming analyst Bill Lerner had a similar take on the potential transactions. He estimated the MGM Grand Detroit would produce $134 million in cash flow in 2009 while the Beau Rivage would have cash flow of $102 million. Both properties, he said, showed resilience in the challenging economy. Selling the resorts makes sense for MGM Mirage's immediate future.

"(The sales) would go quite a ways toward resolving the company's liquidity concerns going forward," Lerner said. "There's no question that if they can put these sales to bed then the results would be positive for MGM Mirage."

KDP Investment analyst Barbara Cappaert, however, questioned if proceeds from the sales would be enough to cover MGM Mirage's obligations. She said the loss of cash flow from the two casinos would hurt MGM Mirage.

"While we will take the positive market sentiment of the asset sale move, we do not believe, however, that the company will be out of the woods and we expect more maneuvering to occur," Cappaert wrote in a research note.

Investors reacted positively to the hiring of Morgan Stanley. A source at MGM Mirage said the firm will evaluate offers for the two casinos, will investigate possible buyers and also solicit additional offers for the two resorts.

Shares of the company stock opened more than 40 percent higher in trading on the New York Stock Exchange before settling back. MGM Mirage closed at $5.53, up 88 cents over Friday's close, or up 18.92 percent. More than 55.5 million shares of MGM Mirage were traded Monday, nine times the average daily volume.

MGM Mirage's closing price was the highest figure since Feb. 13, but well below the closing price a year ago at $61.97.

MGM Grand Detroit and Beau Rivage are considered two of the company's crown jewels outside the Strip where MGM Mirage operates nine resorts and is building the $8.7 billion CityCenter.

MGM Mirage opened the MGM Grand Detroit in October 2007 for $800 million, after operating a temporary casino facility for several years. In Biloxi, the Beau Rivage, Mississippi's largest casino and tallest building, was built by Steve Wynn and sold to MGM Mirage as part of the $6.4 billion buyout of Mirage Resorts in 2000.

Beau Rivage was closed for a year from August 2005 to August 2006 because of damage the property sustained during Hurricane Katrina. MGM Mirage spent $500 million to refurbish the hotel-casino.

Last month, MGM Mirage Chairman and Chief Executive Officer Jim Murren said an outside restructuring adviser had been hired to evaluate offers the company had received for some of its nine Strip casinos.

MGM Mirage is facing two separate financial issues: It must restructured the company's $13.5 billion in long-term debt and it must finance the $8.7 billion CityCenter development the company owns in a 50-50 partnership with Dubai World.

Analysts don't believe proceeds from selling the two casinos would be used to fund CityCenter.

"They are two separate buckets," Fath said. "Some might flow toward CityCenter but there are a lot of moving parts right now."

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