Business: MGM Plans to Sell $2.5B in Stock, Bonds
MGM Mirage (MGM) revealed plans to sell $2.5 billion in stock and promissory notes with a portion of the revenues being employed to repurchase almost $1 billion in loans maturing in the next six months.
The sales could ultimately extract the debt-ridden gaming operator from its severe debt while at the same time taking away the motivation for involuntary asset sales and distressed debt exchanges.
An analyst acquainted with the firm observed that the recent upsurge in the company’s fortunes made it easier for MGM Mirage to put out equity and perform a debt buyback instead of a swap.
"The next big transaction is refinancing the bank debt which is a 2011 event," he said.
The exceedingly leveraged gaming operator also revised its senior credit facility again, further relieving some of the terms of their loans.
MGM’s share price went down 19.3% to $10.01 in late trading. In the meantime, according to MarketAxess, the firm’s 8.375% bonds due to mature in 2011 gained 14.5 points at 80. Also, the company’s 8.5% notes due to mature in 2010 increased 4 points at 90.
MGM Mirage, with billionaire investor Kirk Kerkorian as the main stockholder, is fighting to pay down over $14 billion in loans and had looked at selling off assets to meet their towering responsibilities. Leading bondholders, including investor Carl Icahn and private-equity fund Oaktree Capital Management, also requested that the company file for bankruptcy.
The stock sale announcement arrives as many firms have declared secondary offerings in the past few weeks to capitalize on the rally in the equity market. The value of MGM stock has grown more than six times since mid-March of this year, but is still down by almost 75% in the last twelve months.
The terms of the revised agreement state that the firm will pay back $750 million in credit-line borrowings. Furthermore, the company could possibly be required to pay back more if the offerings bring in more than $2.5 billion.
MGM made public its plans to sell 81 million of the company’s currently outstanding 277 million shares. Tracinda Corp., a firm that currently owns 54% of the stock, signaled that it would buy 10% of the offering.
Every one of the three major credit ratings agencies have reduced MGM’s credit ratings several times over the last six months due to its debt issues. On Friday, Fitch ratings said that MGM would probably start a debt exchange as a component of some restructuring plan.
Recently, MGM announced that first-quarter earnings dropped 11% since revenue from the sale of the Treasure Island casino on the Las Vegas Strip compensated for lower income from canceled conventions and lower customer spending due to effects of the recession.
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