MGM Mirage Weighs Sale of Detroit, Gulf Casinos

By TAMARA AUDI MGM Mirage has hired Morgan Stanley to handle the potential sales of two of its steadiest cash cows, MGM Grand Detroit and the Beau Rivage casino in Biloxi, Miss., according to people with knowledge of the matter. The news comes after a person familiar with the matter said Australian gambling magnate James Packer is weighing a stake in City Center -- the troubled $8.6 billion Las Vegas development owned by MGM Mirage and Dubai World -- as part of an investment with Los Angeles-based Colony Capital LLC. MGM Mirage, based in Las Vegas, is under intense pressure to raise cash to meet looming obligations on its $13.5 billion in debt as well as salvage the City Center project that still needs billions in funding. The company is also grappling with a decline in gambling revenues as consumers cut spending and companies cut back on travel to Las Vegas. Morgan Stanley is in discussions with buyers interested in purchasing the Michigan and Mississippi casinos, said a person close to MGM Mirage. Morgan Stanley is also vetting potential buyers to determine whether they have adequate access to cash or credit and whether they would be likely to win permission to operate a casino from state regulators. A sale of the casinos may not go through, and talks could fall apart at any time. Some in the gambling industry with knowledge of the situation have characterized the process as akin to a "private auction" with qualified potential buyers able to make closed bids to Morgan Stanley. People close to MGM Mirage say the company, controlled by billionaire Kirk Kerkorian, doesn't characterize the process as an auction and won't sell the casinos at a cut-rate price. "The company is going to explore all available options and will develop a comprehensive strategic plan," said MGM Mirage spokesman Alan Feldman. Industry analysts said a sale of the two casinos -- which have held up well even as Las Vegas has seen a sharp decline in revenues -- might bring between $1 billion and $2 billion, providing major relief to MGM Mirage. MGM Mirage recently won a two-month reprieve from lenders, but it warned it might not be able to meet a May 15 deadline to comply with loan covenants. "It would be a pivotal event if they do sell" the two casinos, said Joe Fath, a gambling analyst with fund manager T. Rowe Price. "I think it's going to go a long way to giving the banks more confidence that they can work through the issues they have." MGM Mirage's debt woes are compounded by troubles with the City Center project under construction on the Las Vegas Strip. MGM Mirage is being sued by Dubai World, its partner on the project, over mismanagement and cost overruns. Dubai World, owned by the government of Dubai, skipped its half of a $200 million March payment that was due to contractors. MGM Mirage received special permission from banks to make the full payment on its own. MGM Mirage Chief Executive Jim Murren has said in recent interviews that selling some properties is "part of the solution" to solving the company's debt and cash problems. The casinos in Detroit and Biloxi have produced steady revenue in an otherwise slumping market. And while a sale would raise much-needed cash, it would also deprive the companies of crucial future cash flow. MGM Mirage recently closed on the sale of its Treasure Island casino in Las Vegas to investor Phil Ruffin for $775 million. In 2008, Treasure Island produced $100 million in earnings before interest, taxes, depreciation and amortization, or Ebitda, according to a filing with the Securities and Exchange Commission. By comparison, the Detroit casino produced $131 million in Ebitda and the Beau Rivage casino produced $100 million last year. Both casinos have gone through recent transformations. The first MGM Grand Detroit was a temporary casino located in a former Internal Revenue Service building downtown. MGM Mirage spent $800 million to build a new casino-hotel across the street that opened in 2007. Detroit casinos have defied gravity recently. Even as Las Vegas gambling revenues have dropped by double-digit percentages in recent months, casinos in Detroit in February posted a 4% increase in gambling revenue compared with a year earlier, according to state records. MGM Mirage spent $500 million to resurrect the Beau Rivage after Hurricane Katrina in 2005. The Gulf Coast casino reopened a year later. Write to Tamara Audi at tammy.audi@wsj.com