MGM Mirage Gets Reprieve On Bank Debt

Lenders of $4.37 Billion Agree to Defer Repayment Until 2014 for Troubled Developer of Las Vegas Casino and Resort By ALEXANDRA BERZON Lenders to MGM Mirage have given the Las Vegas-based casino company two more years to pay back a portion of a loan that was to come due in October 2011, the company disclosed Friday. The deadline for the $5.55 billion senior bank credit facility had been a significant hurdle facing the debt-laden company, amid continued weakness in the Las Vegas casino industry. MGM Mirage Chief Financial Officer Dan D'Arrigo called the agreement a "milestone" in efforts to improve the company's balance sheet, which has around $12.5 billion in debt, and further indication that a bank group led by Bank of America Corp., Royal Bank of Scotland, and JP Morgan are willing to be flexible with the casino company. MGM Mirage, already shouldering debt from previous acquisitions, was a profligate borrower during the days of easy credit. To finance an expansion in Asia and upgrade Las Vegas casinos, the company racked up debt that at one time totaled $14 billion. When Las Vegas fell victim to a massive downturn in spending last year, MGM Mirage teetered on the edge of bankruptcy, straining to make $100 million monthly payments on its $8.5 billion City Center project. Lenders amended the terms of the loan eight times to help the company regain its footing. But the question of the credit facility's maturation in 2011 had still hung over the company. "This shows the environment for both banks and our company is a lot more stable," Mr. D'Arrigo said. "We're not out of the woods but the banks clearly have put a lot of faith in our company and know that over time this business will recover." Around 80% of lenders agreed to new terms, which extends the loan to February 21, 2014. The company will have to increase its interest payments to 7% from 6% to those lenders and will also have to pay back around $820 million by June, Mr. D'Arrigo said. The new terms allows the company to issue bonds secured by a casino asset to make that payment. The company will still have to come up with around $1.2 billion by Oct.3, 2011, to pay the lenders who did not agree to the new credit terms. Mr. D'Arrigo said the company has been working for around six weeks on the new agreement. It had previously told investors that an extension was in the works. "This is one step to get investors more comfortable," said Chris Snow, an analyst for CreditSights. "It's one more step to shore up the financial structure. This company still has a lot of work to do. They're going to have to keep focusing on their balance sheet." Another step the company expects to make to pay down debt is an initial public offering in Hong Kong based on its joint venture casino partnership in Macau, as other companies have done. Analysts estimate that IPO could raise between $250 million and $500 million for the company. MGM Mirage also could re-capitalize its $8.5 billion CityCenter casino, hotel, condo and retail joint venture project, which has relatively little debt. But that could prove challenging if condo sales there are slow during a difficult real estate market, analysts say. Las Vegas—where the company reaps around 75% of its revenue—is still on the decline as casino companies continue to slash room rates and visitors continue to spend less. MGM Mirage recently reported that its revenue fell 11% in the fourth quarter of last year. Average hotel rates in Las Vegas declined 5.8% in December, according to the most recent data available from the Las Vegas Convention and Visitors Authority, as operators offered deals in an attempt to entice visitors. Rates fell 22% for the year. MGM Mirage executives, unlike Las Vegas competitors who say the outlook there remains bleak, believe the city will begin to see recovery by the second half of this year, based on their advanced bookings. "Nobody knows more about this city than we do," Mr. D'Arrigo said. "Clearly we see some positive signs in our business."