Red was the dominant color at
MGM Mirage (NYSE: MGM). Red for the company's
shares dropping more than 11% on Thursday, and red for the
faces of its finance team after the company cancelled a debt
exchange, citing insufficient investor interest.
MGM Mirage had asked selected investors to lengthen the
maturity of as many as $500 million in senior notes from next
year to 2016. The lure was a higher interest rate
– 10% versus 8.5%.
But there weren't enough takers, even though MGM Mirage,
which made the initial offer on Aug. 27, extended one
deadline on Sept. 11, and amended the terms on Sept. 17.
Raising money, buying time
The setback stopped MGM Mirage's streak of successful
efforts this year to improve its balance sheet. Among its
deals, MGM Mirage sold a casino for $775 million, completed a
public stock offering that provided $1.1 billion, and sold
$1.5 billion in senior notes.
MGM Mirage also has
signed agreementsto renegotiate debt-payment terms and to
solidify the financingof its CityCenter resort,
condominium, casino, and retail complex in Las Vegas.
CityCenter is scheduled to open in December.
Even if the debt-exchange had been successful, however,
MGM Mirage would have had a long way to go. A late September
report by Fitch Ratings points out that the company's "most
significant credit hurdle" is the maturity of a $5.8 billion
credit facility in 2011. As of June 30, the credit facility
had $4.1 billion outstanding.
Fitch offered its comments after placing a "substantial
credit risk" rating on MGM Mirage's recent issuance of $475
million in unsecured senior notes, due 2018. Fitch added that
MGM Mirage "may have enough liquidity" to take care of nearly
$1.1 billion in debt coming due next year.
Check those numbers
Thanks to aggressive expansion and the recession,
casino operators have encountered debt problems as severe as
bankruptcy, or as chronic as
frequent visitsto debt and/or equity markets. Continued... |