The world’s two largest gaming companies last month dodged bullets as they continued to work with their debtors to avoid declaring bankruptcy-at least for now.
MGM Mirage was granted another waiver allowing it to again put up money on behalf of its CityCenter partner Dubai World, allowing construction on the project to continue.
But the $70 million payment made in April-on top of the $200 million paid earlier in the month-does not get the project out of trouble. Another payment of $200 million is due in May.
And with the relationship between Dubai World and MGM Mirage strained because of an ongoing lawsuit, the gaming giant put up the payments for Dubai World with no guarantee that the money will be returned. For its part, Dubai World said it remains committed to the project.
“We cannot comment on specifics of our discussions but we continue to be fully committed to completing CityCenter and we continue to work with our partners and the lenders to seek a solution,” said George Dalton, general counsel for Dubai World.
The two companies are reportedly negotiating a deal that would guarantee completion of the project. One of the terms of the arrangement would reportedly drop the provision that default on one loan would trigger default on other loans. This would presumably permit MGM Mirage to either declare bankruptcy or restructure other loans in order to survive. Neither partner would comment beyond the fact that talks are ongoing.
MGM Mirage faces a May 15 deadline to design a restructuring plan for its $13.5 billion in long-term corporate debt, which could result in bankruptcy protection, an option that previously would have impacted the completion of CityCenter.
Meanwhile, a new threat arose last month when Carl Icahn and Oaktree Management used their newly acquired leverage to urge MGM Mirage to file for bankruptcy. Icahn, the master Wall Street trader who has already made a profit from the gaming industry, believes that bankruptcy is the best option.
The Wall Street Journal reported that Icahn’s strategy could be to pick up some of the company’s non-strategic assets. Icahn and Oaktree recently bought hundreds of millions of MGM shares in anticipation of this move.
Harrah’s Entertainment, meanwhile, completed a debt exchange offer that reduced the company’s debt by $2.3 billion. The company traded $5.5 billion in debt for $3.5 billion of new 10 percent notes that will mature in 2018, though $514 million notes will still mature in 2010 and an additional $964.2 million will mature by 2013.
A $6.5 billion mortgage-backed securities loan leveraged against Harrah’s, Paris Las Vegas, Flamingo and the Rio properties will also come due in 2013. After the debt exchange offer was completed, analysts examined the company’s financial health and agreed that Harrah’s may still be underwater.
The company is currently operating with $23 billion worth of debt, and analysts say Harrah’s has reduced its interest payments by $70 million per year, which is a small margin.
“The improvement to Harrah’s balance sheet is palpable, as the company should now clearly get through 2010 without any liquidity problems. Beyond that, particularly in 2011, the company will face significant hurdles from its debt maturities,” CreditSights analysts Chris Snow and Frank Lee said in a note to investors.
