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CityCenter deal sends MGM Mirage stock soaring

Analyst: Deal on CityCenter and waivers from lenders ‘a major win for MGM’

CityCenter

Steve Marcus

The CityCenter project on the Las Vegas Strip.

Updated Thursday, April 30, 2009 | 3:21 p.m.

The stock of MGM Mirage soared nearly 36 percent Thursday on news that it secured financing to complete its $8.5 billion CityCenter complex on the Las Vegas Strip and settled its differences with partner Dubai World.

The gaming operator's stock closed at $8.38, up $2.20, on news of the CityCenter deal as well as the receipt of waivers from lenders that let it remain out of compliance with debt covenants through June 30. The waivers give MGM Mirage time to realign its balance sheet, which is loaded with more than $13 billion in debt that the company is having difficulty servicing because of a decline in cash flow tied to the recession.

"This is a major win for MGM in that it frees the company up to focus on its more serious problems," Bernstein Research's Janet Brashear wrote in a client note.

Still, she said, MGM is a "very speculative investment" in the near term until it outlines a plan to restructure debt.

Deutsche Bank debt securities analyst Andrew Zarnett said in a research note that MGM Mirage needs cash to make debt payments this year and, absent asset sales and changes in credit agreements, will face liquidity issues in 2010 and 2011.

"We believe that the waiver extension (to June 30, 2009 ) provides MGM with some breathing room, albeit short, to seek restructuring alternatives such as asset sales in order to reduce debt and thwart bankruptcy. At this juncture, concerns regarding the near-term maturities (due this July and October, respectively) and the deteriorating (market) fundamentals in Las Vegas continue to linger,'' Zarnett wrote.

"We believe that MGM will require selling another asset and getting (the) bank group to agree to the sale in order to solve its 2009 liquidity issues. Further asset sales and credit amendments would be required to solve its 2010 and 2011 liquidity issues,'' he wrote.

Steven Wieczynski of Stifel Nicolaus & Co. agreed the company will need to sell some assets and possibly get a capital infusion.

"Selling assets (Bellagio, Vdara) would help reduce debt levels but the number of qualified buyers remains next to none. If in fact MGM can sell assets or find suitable financing, we believe equity value would expand rapidly," Wieczynski said.

Besides asset sales and a potential equity infusion, ideas floated to correct MGM Mirage's balance sheet issues include a debt exchange or an exchange of debt for assets.

The Associated Press contributed to this report.

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