MGM Mirage Bankruptcy Risk Looms

After the tapping of its revolver which we discussed, and the credit draws in turn by its boss Kirk, MGM Mirage, which even drew the ire of slow bus kid on the block Moody's, now the Las Vegas sun is picking up on the theme of the casino operator's upcoming cash crunch. MGM, which is faced with its own financial black hole in the face of the CityCenter which is a megalith expansion project that will likely never get done, but will still cost billions, faces $1.3 billion in 2009 bond maturities and another $1.2 billion in 2010, while its $7 billion bank loan is due for repayment in 2011.

Standard & Poor’s and Fitch Ratings said MGM Mirage is likely to default on its bank loan this year because the company’s debts are too high. This would put the company's fate at the mercy of its bank lenders who would then decide whether to collect the keys to the casino or let the company run longer but at an exorbitant cost. Red-headed stepchild of the rating agencies Fitch said that even if the company obtains waivers from its banks, amends the terms of its loan or obtains the remaining cash needed for CityCenter, the company’s capital structure “may be unsustainable” given deteriorating business trends in Las Vegas.

The biggest immediate threat is the needed $1.2 billion in extra cash needed to complete the CityCenter project, if co-owner Dubai World, which is now faced with a myriad problems of its own, is unwilling to put up cash for the economic bubble remnant. With MGM stock trading at $3 the feasibility of shorting the company at this point is marginal, as of the 100 million share float, a third is currently short, and a resulting squeeze on any non-apocalyptic news could be impressive. Sphere: Related Content

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