MGM Mirage posts loss, debt covenants waived til May

Los Angeles (Reuters) – MGM Mirage reported a fourth-quarter loss of USD 1.15 billion on Tuesday as gambling demand declined, and it wrote down impaired assets, sending its shares down 3 percent in extended trade.

The No. 2 casino operator also said its banks had agreed to waive debt covenants through May 15.

MGM, grappling with weak demand from recession-weary consumers and a credit market crisis, warned earlier in March that auditors had substantial doubt about the company’s ability to continue as a going concern.

„Our balance sheet has a significant amount of debt, more than we should have for our cash flow,“ Chief Executive Jim Murren said on a conference call with investors and analysts on Tuesday. „I continue to believe that we have the tools available to us to work through this.“

The temporary waiver of financial restrictions gives MGM „some runway“ for solutions, which will likely include more asset sales and debt restructuring, Murren said. „We have seen an extraordinary amount of interest in our portfolio.“

MGM agreed in December to sell its Treasure Island resort on the Las Vegas Strip to real estate mogul Phil Ruffin for USD 775 million and has since hired Evercore Partners to help with financial negotiations.

For the fourth quarter, the company’s overall casino revenue fell 17 percent compared to a year ago. Slot machine revenue was down 12 percent, and table game revenue fell 17 percent compared to last year.

„The results were worse than expected,“ said Robert LaFleur, an analyst at Susquehanna Financial. „Being so exposed to the Strip at all price points, you feel the full brunt“ of the recession.

Revenue from MGM‘s hotel rooms fell 21 percent compared with the same period last year.

„We are willing to discount more to keep the buildings occupied,“ Murren said, adding that Las Vegas hotel revenue fell even more steeply in January.

MGM still expects to open the 67-acre CityCenter project, now seen costing USD 8.7 billion, on the Strip in December. But the company and partner Dubai World are looking to line up more financing for the multi-tower project.

After excluding one-time items, MGM, which operates 10 Strip properties, posted an adjusted quarterly loss of 11 cents a share, compared with Wall Street expectations for a profit of 15 cents a share, according to Reuters Estimates.

On a net basis, the casino operator posted a loss of USD 4.15 per share, compared with a profit of USD 872.2 million, or USD 2.85 per share, a year ago.

MGM, controlled by billionaire Kirk Kerkorian, said it recorded a USD 1.2 billion impairment charge for the write-down of assets from its 2005 purchase of Mandalay Resort Group.

Net revenue fell 16 percent to USD 1.62 billion, short of analysts‘ expectations for revenue of USD 1.7 billion, according to Reuters Estimates.

MGM said it had repaid USD 300 million of its USD 7 billion senior revolving credit facility and would pay another 100 basis points in interest on the balance in return for a waiver of financial covenants through May 15.

„It buys them time,“ LaFleur said. „But none of the issues hanging over the company are likely to be fully resolved by May.“

MGM shares slide to USD 2.95 after hours, after closing down 6.19 percent at USD 3.03 in regular trade on the New York Stock Exchange on Tuesday. The stock has lost about 95 percent of its value over the past year.