MGM Mirage looks to raise $2.5B in capital

14.05.2009, Casino operator MGM Mirage, majority-owned by billionaire Kirk Kerkorian, said Wednesday that it plans to raise $2.5 billion through stock and bond offerings to pay off some of its more than $14 billion in debt and strengthen its balance sheet.

Investors, seemingly unconvinced, sent the company's stock down 16.4 percent, or $2.03, to $10.37 in morning trading.

Las Vegas-based MGM Mirage ( MGM - news - people ), which said it also is modifying an existing loan agreement, plans to raise approximately $1 billion from a public offering of 81 million shares and $1.5 billion from private placement of senior notes. It will used the proceeds to pay off $1.05 billion in debt maturing this year that it and its Mandalay resort issued plus at least $750 million of a credit line.

MGM Mirage still faces the challenge of "driving shareholder returns under (the) burden of" more than $14 billion in debt, Bernstein Research analyst Janet Brashear said in a note to clients.

"We continue to believe that investors should not jump in unless the company comes up with a business plan that begins to create profitable returns as opposed to just staying solvent," wrote Brashear, who rates the stock "Underperform" with a price target of $7.

The company has restructured its debt repeatedly this year as it made required contributions toward the $8.5 billion CityCenter casino development it is building in Las Vegas with Dubai World.

The company has reached a deal with Dubai World and the pair's lenders to complete the project. Some analysts had feared MGM Mirage would file for bankruptcy court protection if it could not complete financing for CityCenter.

The newest credit agreement - contingent on MGM Mirage successfully raising the $2.5 billion - allows it to waive any default from inclusion in auditors' consideration of whether it can be deemed a "going concern" in its 2008 and 2009 financials. A going- concern qualification refers to a company's ability to continue operating for the foreseeable future.

Kerkorian's Tracinda Group, which holds about 53.8 percent of MGM's stock, plans to buy approximately 8.1 million more shares. MGM Mirage had about 276.6 million outstanding May 5, according to a filing with the Securities and Exchange Commission.

The private placement will include notes due in 2014 and 2017 and secured in part by a first-priority lien on the Bellagio Hotel and Casino and The Mirage.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

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