March 05, 2009

MGM Mirage warns of debt default risk

MGM Mirage, the gaming operator that owns some of the world’s best-known casinos, warned on Tuesday that it is at risk of defaulting on its debt, underscoring the steep downturn in the global gaming sector.

In a regulatory filing to explain the delayed release of its fourth-quarter earnings, MGM Mirage – which counts billionaire Kirk Kerkorian as its biggest shareholder – said it was "still in the process of assessing its financial position and liquidity needs".

The group owns the Bellagio, MGM Grand and Mirage casinos in Las Vegas, and other properties in Atlantic City. It is trying to complete construction of CityCenter, a $9bn gaming and hotel complex on the Las Vegas Strip that is the costliest such development ever.

The group recently drew down the remaining $842m from its revolving credit facility but still needs more capital. It has $1.2bn of bonds that fall due this year and another $1.2bn in 2010. It also needs to finance an extra $1.2bn to complete CityCenter.

With credit markets frozen, it has been unable to refinance any of its debt. It said it was close to breaking its debt covenants “if the recent adverse conditions in the economy in general – and the gaming industry in particular – continue”.

"It is likely that the report of [MGM Mirage’s] independent registered public accounting firm . . . will contain an explanatory paragraph with respect to [its] ability to continue as a going concern," the company said.

The group brought in Dubai World as a partner in the City-Center development two years ago in a $5bn deal that gave Dubai World a stake in MGM Mirage. But since then, MGM Mirage has been hit by a downturn in attendance. Its shares have fallen more than 90 per cent in the past 12 months.

"There’s a clock ticking," said Susan Berliner, JPMorgan analyst. "There’s only so much time before their liquidity runs out. They have to hurry and execute something in terms of a capital raise but their options are becoming much more limited."

Trump Entertainment Resorts recently sought Chapter 11 bankruptcy protection after it was hit by a sharp decline in revenues at its Atlantic City properties.

The company sought bankruptcy protection after bondholders rejected a bid for the group from Donald Trump, the largest shareholder. Mr Trump recently stepped down from the company’s board.

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