MGM Mirage stock falls, 143 million shares issued

By Steve Green

Published Thursday, May 14, 2009 | 10:12 a.m.

Updated Thursday, May 14, 2009 | 2:47 p.m.

The stock of hotel-casino operator MGM Mirage fell again Thursday as investors continued to react to Wednesday's moves to shore up its debt-laden balance sheet.

MGM Mirage shares closed at $7.76, down 11 percent, or 94 cents.

This follows a 30 percent decline in the price of the stock Wednesday after MGM Mirage announced plans to raise $2.5 billion with a $1 billion stock offering and the issuance of $1.5 billion in new debt -- with much of the proceeds earmarked for refinancing or paying off some of the company's $14 billion-plus in debt.

MGM Mirage today said it completed the public offering through the issuance of 143 million shares.

The number of shares issued had to be increased to reach the $1 billion mark as the price of the stock fell in recognition that the value of existing shares would be diluted by the additional shares.

The underwriters for the stock offering have a 30-day option to purchase up to an additional 21.45 million shares of common stock from the company to cover any over-allotments from the offering. Over-allotments are stock sales on top of what was planned in the initial offering.

The debt research firm CreditSights said the plan "should provide sufficient liquidity for the company to weather all but the direst operating scenarios up until the maturity the credit facility in October 2011.''

CreditSights said that of the $2.5 billion, the company will have proceeds of about $500 million after paying $750 million due on a credit facility, paying $130 million to redeem bonds due in 2017 and paying off $1.05 billion in bonds due this year.

"The unresolved question of how (MGM Mirage) will refinance a $5.7 billion balance on its credit facility remains, as the company has only approximately $1 billion of lien capacity and potentially $1 billion in available cash,'' CreditSights said.

Analysts on Wednesday suggested an asset sale may still be in the cards for the company, with its Mandalay Bay Resort cited as a sales possibility now that the Bellagio and Mirage properties have been pledged as collateral against debt.

But talk of asset sales on the Las Vegas Strip has been dampened by the reality that the city's over-supply of hotel rooms will likely worsen when MGM Mirage's $8.5 billion CityCenter complex begins opening in phases this year.

Also, on Wednesday Fitch Ratings upgraded MGM Mirage's Issuer Default Rating to "CCC'' from "C'' following the company's financing announcements. Issuers in the CCC category remain at risk of defaulting, but less so than issuers in the C category.

The rating actions affect MGM's $7 billion credit facility, $6.2 billion of outstanding senior unsecured debt, $848 million of outstanding senior subordinated debt and $750 million of senior secured notes.

Fitch noted MGM Mirage obtained amendments to its credit facility removing debt leverage and debt coverage covenants and waiving a potential default from auditors' "going concern'' language about the viability of the company.

"The 'CCC' Issuer Default Rating indicates that even if the transactions announced today are completed as planned, MGM Mirage will remain a highly-leveraged gaming operator with high exposure to the Las Vegas Strip, a market that is likely to continue to be under significant operating pressure in upcoming quarters. In addition, the rating incorporates the company's heavy debt maturity schedule in 2010 and beyond, and the uncertainty of the impact that the late 2009 opening of CityCenter may have on MGM Mirage's wholly-owned properties. Fitch recognizes that there have been signs that declines in travel demand trends have started to moderate in recent weeks. However, MGM Mirage's credit profile contains significant credit risk if those stabilization trends do not continue,'' Fitch said.