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MGM Resorts expects quarterly loss of $206 million

Company says it’s interested in raising $600 million through stock offering

Updated Tuesday, Oct. 12, 2010 | 6:10 p.m.

MGM Resorts International today said it expects to post a third-quarter operating loss of $206 million as it likely will take a financial hit on the sale of its share of the Borgata resort in Atlantic City and because of continued asset writedowns at CityCenter on the Las Vegas Strip.

At the same time, MGM Resorts is looking to Wall Street to raise more than $600 million in a stock offering.

On a net income basis, which includes debt payments, MGM Resorts expects a third quarter loss of $317.2 million or 72 cents per share vs. a loss in the year-ago quarter of $750.4 million or $1.70 per share.

MGM Resorts needs to raise cash to pay down a bank loan of $1.1 billion that’s coming due a year from now, analysts said today. Proceeds from the sale of stock, in addition to the pending sale of its half-owned Borgata resort in Atlantic City and earnings from its Chinese resort in the lucrative market of Macau could be used to do that, they said. Earlier this year, the company negotiated with lenders to postpone by a few years billions more in debt that would have come due in 2010.

In addition, analysts said the cash may give MGM Resorts the cushion it needs to avoid violating terms of a bank loan. The company has paid about $1 billion in interest payments over the past year and is earning little more than that in earnings. The bank loan requires that MGM generate at least a billion in earnings this year.

If earnings continue to fall, the company could be at risk of defaulting on the loan, giving lenders the right to collect. Lenders have so far been willing to give MGM Resorts more time to recover from the recession. They have negotiated more favorable loan terms for the company in exchange for repayment, in some cases at higher interest rates, to help the company avoid default and potential bankruptcy.

Net revenue for the third quarter is expected to come in at $1.47 billion, down 3 percent on a year-over-year basis, the company said in pre-announcing quarterly results. A key indicator on the Las Vegas Strip -- revenue per available room -- was down 2 percent from the 2009 quarter to $97.

The decline in revenue per available room indicates continued tough operating conditions for Las Vegas gaming operators because the recession has reduced visitation to Las Vegas while the number of hotel rooms continues to grow in the U.S. gaming capital.

Also highlighted in announcements today:

-- MGM Resorts has received an offer for its share of Borgata from a party it did not immediately identify. Based on Borgata's debt, this offer would yield about $250 million for MGM Resorts' 50 percent interest. This caused MGM Resorts to post a $128 million impairment charge as the $250 million is

less than what MGM Resorts has been valuing that asset at. The offer — valuing Borgata at $1.35 billion — will now be reviewed by Borgata partner Boyd Gaming Corp., which has rights of first refusal. The fact that the offer has been referred to Boyd indicates the offer disclosed today by MGM Resorts was not made by Boyd.

-- MGM Resorts said its CityCenter construction completion guarantee obligation has increased by $232 million as the $8.5 billion CityCenter construction closeout and litigation process continues. At the same time, because of the increase, "the company reviewed its investment in CityCenter due to such increase and expects to record a pre-tax impairment charge of approximately $182 million in the third quarter."

-- MGM Resorts is taking a pre-tax charge of $46 million for impairment of CityCenter’s residential real estate inventory.

-- CityCenter itself -- half owned by MGM Resorts -- is writing down by $279 million the value of the unopened Harmon Hotel there. That property is the subject of much of the CityCenter construction defect and construction closeout litigation.

-- Aria at CityCenter turned profitable in the quarter, generating net revenue of $219 million and adjusted EBITDA of $41 million. EBITDA means earnings before interest, taxes, depreciation and amortization. In the second quarter it reported an EBITDA loss of $17.138 million.

-- MGM Resorts expects to receive $125 million from the loan to its MGM Macau

property in China. That money is coming from retained earnings at the property, where an initial public stock offering is also in the works.

-- MGM Resorts is looking to raise cash by offering to the public 40.9 million shares of its common stock, plus potentially another 6.135 million shares in potential "over-allotments." Cash raised from the deal would be used for general corporate purposes including reducing debt. At current prices the offering would raise up to $641 million.

-- Billionaire Kirk Kerkorian’s Tracinda Corp., the largest MGM Resorts shareholder, is separately offering 27.782 million shares and up to 4.167 million shares for over-allotments. Cash raised by Tracinda wouldn’t go to MGM Resorts.

In a statement, Tracinda said that following the planned stock sale, Tracinda would own about 30 percent of MGM Resorts' outstanding common stock.

"As MGM Resorts' largest shareholder, Tracinda believes that there is substantial value in the assets of the company and that MGM Resorts is a good long-term investment. Tracinda is not currently seeking other strategic alternatives with respective to its investment in MGM Resorts," the company said in a statement.

A Tracinda representative declined further comment on the stock sale, which is expected to dilute Kerkorian’s interest in the company to just under 30 percent ownership.

Sun reporter Liz Benston contributed to this report.

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