Wednesday, March 18, 2009

MGM Gets "Going Concern" Warning, Buys Back $345 Million Face Of Notes

MGM joins the crowd of highly levered companies that announced a going concern by its auditors in its annual filing. The Vegas casino operator also announced it had received a 2 month covenant waiver from lenders on its $7 billion credit facility.
“We view the recently executed waiver and amendment as a strong show of support by our long-term relationship banks,” said Executive Vice President and Chief Financial Officer of MGM MIRAGE, Dan D’Arrigo. “We look forward to further dialog with our lenders as we consider all viable options to improve our capital structure, which may include asset dispositions, raising additional debt and/or equity capital, and modifying or extending our outstanding debt.”
However the auditor warning and continuing operational deterioration likely just buys the company some time to pursue asset sales before it will have to get much more creative with its capital structure. With its staggering debt load of $13.5 billion it is very questionable whether the company will obtain property bids that are deleveraging. MGM reported decilning full year EBITDA of $2 billion, meaning any asset sale would have to be done at over a 6.75x transaction multiple for even $1 dollar of incremental deleveraging which in this environment could be extremely difficult.

Curiously, in a footnote to its Q4 results, the company disclosed that it had aggressively been purchasing debt: MGM notes it had bought $345 million face of its October 2009 and September 2010 notes at a combined cost of $263 million, implying a repurchase price of 76 cents. As the latter issue is now trading at 48 cents, this indicates that had the company waited another 3 months, it could have repurchased its bonds at a further 40% discount. Although the potential loss of an incremental $97 million benefit is likely cold comfort to the company as it now struggles to stay alive. Sphere: Related Content
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Anonymous said...

Also Per CNBC:

Station Casinos to file BK Protection by 4/15.

Say it isn't so..

Anonymous said...

Just wait... The Indians will step in and make a buy. Woo-woo, not dot head.