LOS ANGELES, March 16 (Reuters) - MGM Mirage (MGM.N), which earlier this month warned it was in danger of violating debt covenants, will report fourth-quarter results on Tuesday and investors are expecting details on how the casino operator intends to avoid a default.
MGM, controlled by billionaire Kirk Kerkorian, will also face questions on financing prospects for its CityCenter project under construction on the Las Vegas Strip, where the company already operates 10 casino resorts.
Industry sources say a solution could involve reworking the multi-tower CityCenter’s condo-hotels — a market that has soured dramatically amid the downward spiral in U.S. housing prices.
MGM last year raised $750 million from notes secured by its New York New York resort on which it is paying 15 percent a year in interest. In December, the company agreed to sell its Treasure Island resort on the Strip to real estate mogul Phil Ruffin for $775 million and in February it drew down the remaining $842 million of its revolving credit facility.
“The obvious conclusion is that they need the cash,” said Eugene Christiansen, chief executive at Christiansen Capital Advisors, a consultant and financial advisor to leisure industries.
Like many other casino operators, MGM is grappling with the twin pressures of dwindling demand for gambling from recession-battered consumers and a credit market crunch.
Wall Street analysts have speculated for months that more asset sales are in the works and that the company was talking to its banks to work out terms for covenant relief. The company acknowledged as much in a regulatory filing earlier this month in which it also said auditors could question the company’s ability to continue operating as a going concern.
“We haven’t seen actual properties come on the market, but they are taking unsolicited offers,” said Jason Jones, senior vice president at Jones Lang LaSalle Hotels.
MGM spokesman Alan Feldman confirmed that the company will report quarterly results on Monday, but he declined to comment on prospects for additional asset sales or whether MGM is granting additional security to bank lenders in return for covenant relief
“I wouldn’t be surprised to see more from MGM,” Deutsche Bank analyst Bill Lerner said earlier this month at the Reuters Travel and Leisure Summit. “I don’t think any property is out of the question.”
In addition to Vegas resorts like MGM Grand and the Bellagio, MGM owns casinos in Detroit, Biloxi, Mississippi and elsewhere as well as undeveloped land in Las Vegas.
MGM and partner Dubai World a couple of weeks ago failed to reach a deal with Deutsche Bank AG over the final $1.2 billion in financing for CityCenter, and there has been speculation that the partners would seek to sell a component of the project.
“I’d be surprised if they dilute the joint venture,” said an industry source familiar with the CityCenter discussions.
Lerner, in a recent research note, said MGM might consider exchanging assets for its discounted debt in a three-prong transaction in which another company would buy the debt, turning it over to MGM in return for a casino property.
“From the perspective of MGM, it could avoid shopping some assets unfavorably in a tough financing and valuation environment,” he said.
Another option would involve pledging property against its loans, since nearly all of MGM’s outstanding bonds are not secured by its properties. A big disadvantage is that equity holders could be wiped out in the event of a bankruptcy filing.
Analysts, on average, expect MGM to post an adjusted fourth-quarter profit of 15 cents a share, down from 41 cents a share a year earlier, according to Reuters Estimates.
The company’s shares, which fell 8.5 percent on Monday to close at $3.23 on the New York Stock Exchange, have lost 95 percent of their value over the past year. (Reporting by Deena Beasley; editing by Richard Chang)