EDIT AH Now $2.25
UPDATE: MGM Mirage: Could Violate Debt Covenants This Year
March 03, 2009: 06:48 PM ET
(Updates with after-market stock movement and comment from industry expert; adds details throughout)
By A.D. Pruitt and Brian Kalish
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- MGM Mirage (MGM) warned Tuesday that it could violate its debt covenants this year and be in danger of default if economic conditions continue to erode.
The struggling casino giant said it will delay filing its annual report and that its auditor is likely to include an explanatory paragraph raising doubt about MGM's ability to continue as a going concern, according to a filing with the Securities and Exchange Commission.
MGM Mirage's shares traded down 10% to $2.35 in after-hours trading.
The news came as little surprise to Wall Street as the gambling industry has been down on its luck for some time with fewer gamblers frequenting slot machines, blackjack tables and other fare amid a deepening recession.
It's been more brutal for casino giants like MGM Mirage, Las Vegas Sands Corp. (LVS) and Wynn Resorts Ltd. (WYNN) given their big exposure to the challenged markets in Las Vegas and Macau. These companies are struggling to fill hotel rooms and restaurants, while trying to stay on track with expensive resort developments amid a crippling credit crunch.
Underscoring the malaise, MGM Mirage's stock has tanked about 80% year-to- date.
MGM Mirage said it's still in the process of assessing its financial position and liquidity needs and is currently in compliance with its financial covenants. Becoming noncompliant would constitute an event of default.
The company also started discussions with the administrative agent of its senior credit facility in order to obtain a waiver for any instances of noncompliance or an amendment to the senior credit facility to modify the covenants.
"It's pretty much the end of the line here," said Roger Gros, publisher of Global Gaming Business, a trade magazine. "At this point, it looks like there is going to be some type of Chapter 11" filing.
He said MGM should be more aggressive about asset sales in order to drum up liquidity. MGM Mirage recently agreed to sell its Treasure Island casino in Las Vegas to Kansas billionaire Phil Ruffin Sr. for $775 million.
If MGM is unable to negotiate a waiver or an amendment, a majority of the lenders under the senior credit facility could accelerate repayment of borrowings, and, under certain circumstances, cross-defaults could be triggered for its other debt instruments, according to the filing.
MGM's filing comes on the heels of stiff downgrades by all three major ratings agencies Friday after the company requested to borrow $842 million under its $ 4.5 billion credit pact.
The major credit ratings agencies have long expressed concerns about how MGM Mirage will secure all the financing it needs to complete its 76-acre $9 billion CityCenter resort in Las Vegas. The agencies have said MGM Mirage will likely see higher out-of-pocket expenses to complete financing for the resort slated to open this year.
Fitch Ratings said it believed MGM is unlikely to remain in compliance with its covenant this year, and sees drawing on the revolver as a sign the company could breach its near-term covenant.
Even if the company obtains waivers or amends the terms of the credit facility the deterioration in Las Vegas and the industry outlook suggests the capital structure may be unsustainable, Fitch said.
-By A.D. Pruitt and Brian Kalish, Dow Jones Newswires; 201-938-2269; angela.pruitt@dowjones.com
(END) Dow Jones Newswires
03-03-09 1848ET
Copyright (c) 2009 Dow Jones & Company, Inc.
"Your Vegas Is Showing"
I've been to Hollywood
I've been to Redwood
I crossed the ocean
for a heart of gold
I've been in my mind,
it's such a fine line
Later, The Team.
