MGM Mirage Offers Casinos as Security to Avoid Default

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MGM Mirage Said to Offer Casinos as Security to Avoid Default
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By Beth Jinks

March 16 (Bloomberg) -- MGM Mirage, seeking to modify lending terms on its unsecured debt and avoid default as gambling activity withers, is in talks with banks to pledge casinos as loan collateral, a person with knowledge of the discussions said.

The Las Vegas-based casino company, controlled by 91-year- old investor Kirk Kerkorian, said it is also open to selling more assets. Analysts have suggested other options, including handing over a property directly to bondholders to eliminate some debt.

“Talks with our financial partners are ongoing,” MGM Mirage said in an e-mailed response to questions. “We’re evaluating every possible option and, as we’ve said before, we will explore all serious and credible possibilities.”

MGM Mirage, the largest casino owner on the Las Vegas Strip, delayed its annual report on March 3 and said a plunge in earnings may cause a breach of the $7 billion senior credit facility, allowing banks to accelerate payment and trigger defaults. Auditors are likely to include “going concern” language in the filing, due by tomorrow. Such language suggests the risk of bankruptcy.



The company gained leverage in talks with unsecured lenders this month, drawing the last $842 million on the senior credit facility. Without security, banks led by Bank of America Corp. would have no advantage over bondholders divvying up assets in the event of a bankruptcy.

“The banks can accelerate this loan and throw MGM into bankruptcy,” distressed-debt analyst Adam Cohen, founder of Covenant Review, said in an interview. “On the other hand, if you’re a lender maybe that’s not a great result for you because now you’re fighting alongside all the unsecured bondholders.”

Evercore Partners

Evercore Partners has been hired to help MGM Mirage restructure its debt, said the person, who declined to be named because the information is private.

MGM Mirage spokesman Gordon Absher declined to comment beyond the statement. Louise Hennessy, a spokeswoman for Charlotte, North Carolina-based Bank of America, administrative agent for the senior credit facility, declined to comment.

MGM Mirage was still expanding when Chief Executive Officer James Murren replaced Terry Lanni in November, facing a deepening recession and revenue declines in Las Vegas and China’s Macau.

Murren agreed in December to sell the company’s Treasure Island casino, postponed the opening of one hotel and canceled a condominium development at CityCenter, MGM’s joint venture Strip development with Dubai World.

He still needs to find as much as $1.2 billion in financing to finish CityCenter. Talks with Deutsche Bank AG on a $1.2 billion loan to complete the project collapsed this month, according to people with knowledge of the matter.

‘Right Price’

“Among the possibilities would be another asset sale but it would have to be at the right price and the right terms,” MGM Mirage said in the statement.

Gambling revenue in Las Vegas, the biggest betting center in the U.S., fell the most on record last year, causing declining sales at MGM Mirage, the owner of 10 casino resorts in the city and the biggest employer in the state of Nevada.

MGM Mirage has $1.28 billion in bonds due this year and another $1.12 billion maturing in 2010, according to Bloomberg data. The company has said it bought back some bond debt trading at discounted levels.

By offering banks liens on casinos and other assets, MGM Mirage could get relief from loan rules, prevent accelerated repayments and buy time for further financial restructuring, Cohen said.

Banks may have little incentive to help MGM Mirage avert a bankruptcy if they have insured their loans by buying credit- default swaps to protect against a default, he said.

“That’s a mystery element here,” Cohen said. “To what degree are the bank lenders holding credit-default swaps so they don’t give a damn if MGM goes bankrupt.”

Casinos for Bonds

In another option proposed by Bill Lerner, an analyst at Deutsche Bank AG, MGM Mirage may exchange a casino to an investor who buys out bondholders at a premium to the securities’ current prices -- though still at a discount to the bonds’ face value.

Such a transaction would allow MGM Mirage to avoid selling a property in today’s declining market, while canceling substantially more debt than the actual transaction price. That would help the company lower its leverage ratios, Lerner said in a March 9 report.

MGM Mirage may also seek to exchange or repurchase its bonds at a discount to face value, Lerner wrote. “This short-term action for relief would quell bankruptcy concerns, especially as we believe the company should have sufficient liquidity, plus significant free cash flow capability, to address 2009 and 2010 debt maturities.”

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net
Last Updated: March 16, 2009 00:00 EDT