MGM Bondholders Weigh Equity Swap

By TAMARA AUDI and JEFFREY MCCRACKEN Several of MGM Mirage's major bondholders are discussing plans to swap debt for stakes in the company if the casino giant files for bankruptcy, according to people familiar with the situation. Carl Icahn The discussions come as MGM Mirage is straining under $14 billion in debt and a recession that has depressed revenue. It is also under pressure to continue to fund its $8.6 billion City Center project, which it owns with Persian Gulf investment fund Dubai World, in Las Vegas. Large MGM Mirage bondholders, such as activist investor Carl Icahn and private-equity fund Oaktree Capital Management, are pressuring MGM Mirage -- which has $1 billion in bond payments due this year -- to consider bankruptcy protection. Mr. Icahn and Oaktree aren't working together. MGM Mirage didn't respond to a request for comment. One postbankruptcy plan being considered by a group of bondholders would involve new capital from outside investors and bondholders, including Mr. Icahn, according to people familiar with the situation. Any plan involving Mr. Icahn also would include major MGM Mirage shareholder Kirk Kerkorian, a person with knowledge of the situation said. "The only way any of this would come into fruition would be with Mr. Kerkorian joining the group," this person said. Mr. Icahn is eager to see Mr. Kerkorian remain part of MGM Mirage through some type of investment, this person said, though Mr. Kerkorian's majority status would likely be diminished. Kirk Kerkorian It is unclear if Mr. Kerkorian has been approached by Mr. Icahn or anyone in the group of bondholders and investors discussing equity stakes in MGM Mirage after a bankruptcy. A spokesman for Tracinda Corp., Mr. Kerkorian's investment firm, declined to comment. Separately, Oaktree has expressed interest in investing in MGM Mirage and would "like to be seen as a white knight, not a dark one," said one person familiar with the situation. A "white knight" is an investor that helps fend off an unwanted suitor. Though Oaktree and Mr. Icahn aren't working together, they agree the company needs a longer-term solution, which may or may not require bankruptcy. Both parties have been in regular conversation with MGM Mirage and its financial adviser, Evercore Partners, about different ways to fix the company. Other large, institutional MGM Mirage bondholders, such as Fidelity Investments, have turned over the MGM Mirage situation to so-called workout groups, which are used in distressed situations, and they are monitoring the situation, said these people. There are many obstacles to an MGM Mirage bankruptcy. Banks, which hold $7 billion in unsecured debt, don't want to see it go bankrupt, since that would put them on par with bondholders in a bankruptcy proceeding. MGM Mirage has been working to avoid bankruptcy and has $800 million in excess cash to help it meet debt obligations. Write to Tamara Audi at tammy.audi@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com