MGM Mirage casino co. says it may default on debt

Casino company MGM Mirage says it may break loan covenants this year unless more people gamble

Las Vegas (AP) – MGM Mirage Inc., the gambling company owned by billionaire investor Kirk Kerkorian, said Tuesday that it may default on its debt amid development of its biggest casino project ever, the USD 8.6 billion CityCenter in Las Vegas.

Unless the economy turns around and more people start gambling again, the Las Vegas-based casino company believes it will break its loan agreements this year, it said in a filing with the Securities and Exchange Commission.

That would mean a default on its senior credit facility, which MGM has asked to modify.

MGM Mirage will delay filing its annual report until March 17 because it is still assessing its financial position and liquidity needs, the company said in Tuesday’s unscheduled filing. One factor in the delay, the company reported, was its decision last week to tap USD 842 million of its USD 4.5 billion senior revolving credit agreement to cover general expenses.

As of the end of September 2008, MGM Mirage had USD 13.29 billion in long-term debt.

Many U.S. casino companies borrowed huge sums in the last few years to develop resorts in the United States and abroad. But several are having trouble making payments on that debt because their revenue has fallen sharply over the past year as fewer patrons spend less money on gambling and services.

Chief Executive Jim Murren, who took over late last year, has said the company is exploring a half-dozen deals around the world in which MGM Mirage would lend its name and expertise to generate income.

It sold the Treasure Island casino on the Las Vegas Strip to Kansas billionaire Phil Ruffin for USD 775 million and has since been shopping other properties, including nearly 300 acres (122 hectares) of land in Nevada and Atlantic City, New Jersey, and two airplanes.

MGM Mirage has not reported on its financial position since September nor posted its earnings for the quarter that ended Dec. 31.

The March 17 report is to include an auditor’s assessment of whether MGM Mirage can continue as a company.

Another casino operator, Las Vegas Sands Corp., faced similar questions from its auditor in November, but the concerns were removed after the company raised USD 2.1 billion in capital by selling common stock and preferred stock with warrants. In September, Sands‘ billionaire founder and CEO Sheldon Adelson and his wife invested USD 475 million in the company to help meet its debt obligations.

MGM Mirage has said it still needs to raise USD 1.2 billion to finish CityCenter on the Las Vegas Strip. The 67-acre (27-hectare) complex of hotels, a casino, condos and retail space has been called the largest privately financed project in U.S. history. CityCenter is a joint venture of MGM Mirage and Dubai World subsidiary Infinity World Development Corp. Dubai World also owns a 9.4 percent stake in MGM Mirage.

Analyst Robin Farley of UBS Investment Research told investors on Tuesday that MGM Mirage and Dubai World each need to fund about USD 1.3 billion for CityCenter this year.

„MGM had expected to fund their portion with condo sales proceeds; however, we expect many of the condo sales may not close,“ Farley said.

MGM Mirage’s profit during the first three quarters of 2008 fell 59 percent compared with the same period in 2007, from USD 712.21 million to USD 292.7 million.

Joseph Weinert, senior vice president of casino consulting business Spectrum Gaming Group in Linwood, New Jersey, said MGM Mirage’s filing on Tuesday is a sign of the times.

„When you have one of the industry giants walking a financial tightrope, it really speaks to the state of the whole industry,“ Weinert said. „MGM is a widely respected company both on Wall street and in the gaming street, and to see a company like that in the situation it’s in, it’s a troubling sign for Las Vegas.“

Shares of MGM Mirage dropped 37 cents, or 14 percent, to USD 2.25 in after-hours electronic trading. It ended the regular session at USD 2.62, down 43 cents or 14 percent from its previous close. The stock has lost most of its value since peaking at USD 64.73 last March.

In the last year, the 91-year-old Kerkorian’s majority stake in the company shrank in value from USD 9.6 billion to about USD 390 million.

Kerkorian’s Tracinda Corp., based in Beverly Hills, California, also holds stakes in Ford Motor Co. and Delta Petroleum Corp.

Tracinda sold part of its stake in Ford in October, taking millions of dollars in losses. Kerkorian, a longtime casino and hotel developer, has a mixed track record with the other two major U.S. automakers, including an unsuccessful USD 4.5 billion cash offer for Chrysler last year and his push for General Motors Corp. to form an alliance with Nissan Motor Co. and Renault SA in 2006.

Tracinda also was Chrysler’s largest shareholder at the time of its 1998 combination with Daimler-Benz.