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September 21, 2014

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CityCenter secures $1.8 billion; Wynn avoiding worst of crunch

It wasn't that long ago that Wall Street was criticizing Steve Wynn, who then owned Mirage Resorts, for spending money like a drunken sailor.

At a time that dictates extreme caution, Wynn, who financed his Encore resort before financing dried up, may be having the last laugh.

In recent weeks, competitors MGM Mirage and Las Vegas Sands – which are seeking money for new projects at a time when banks are reluctant to lend – have been forced to act to appease skittish lenders.

Last week, Las Vegas Sands Chief Executive Sheldon Adelson put $475 million of his own cash into the company to avoid paying a higher interest rate as a penalty for exceeding leverage requirements.

Today, MGM Mirage – which had not secured financing prior to a credit crunch that has only deepened from last year – announced it has secured $1.8 billion of the $3 billion needed to complete its CityCenter project with joint venture partner Dubai World.

In spite of what sounded like good news, investors saw the glass as half empty and shares fell more than 16 percent this morning. Wall Street sees financing and economic challenges ahead, particularly for a project of this scope.

The CityCenter loan is expected to be increased to $3 billion as the joint venture receives additional commitments from banks, MGM Mirage said. Both MGM Mirage and partner Dubai World will seek the remaining commitments through a syndication process that will begin Tuesday.

The credit facility is priced at LIBOR plus 3.75 percent through the construction period, or about 7.75 percent.

In a research note to investors today, Goldman Sachs stock analyst Steven Kent said banks are "willing to work with MGM" to remove the risk for potential leverage violations in the short term. Yet the deal indicates that operating conditions, especially in Las Vegas, "remain challenging."

MGM Mirage also amended an agreement with lenders, allowing the company to increase its leverage ratio in exchange for a higher interest rate.

Not so for Wynn Resorts, which amended an agreement with lenders last month that doesn't increase the company's interest rate.

The agreement gives the company more time for Encore, which opens at the end of this year, to ramp up earnings after its debut before leverage requirements kick in. The agreement allows Wynn to raise an additional $150 million to finish Encore.

Analysts applauded the company for foresight and conservatism amid economic uncertainty.

"We believe Wynn is one of the best positioned gaming operators in regards to financial health and flexibility, important factors in this environment," stock analyst Steven M. Wieczynski of Stifel Nicolaus Capital Markets said in a research note to investors Sept. 19.

This is the same Wynn who was called out by Wall Street for excessive spending and imprudent planning in the 1990s.

While Wynn shares also got a beating this morning, falling by more than 15 percent, the company has lost less of its value than MGM and Las Vegas Sands, which are trading at close to 20 percent of their value a year ago. Wynn shares have lost a bit more than half their value over that period.

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