MGM MIRAGE bonds gain on increased Las Vegas travel

Thursday, Sept. 9, 2004 | 11:04 a.m.

BLOOMBERG NEWS

Bonds of MGM MIRAGE, the third-biggest U.S. casino company, are rising on speculation an influx of visitors to Las Vegas will ease the burden of meeting any additional debt payments taken on in connection with its planned acquisition of Mandalay Resort Group.

MGM MIRAGE's 6 percent notes maturing in 2009 rose almost 5 cents to 102 cents on the dollar since the Las Vegas-based company made a bid for Mandalay three months ago, according to Merrill Lynch & Co. In that time, company debt with MGM MIRAGE's BB credit ratings rose 2.6 cents to 105.7 cents on average.

The number of travelers going to Las Vegas increased 6.5 percent in the first six months of 2004 from a year earlier, according to the Las Vegas Convention and Visitors Authority. MGM MIRAGE, owner of the Bellagio, The Mirage, and Treasure Island casinos, is buying Mandalay for about $4.8 billion to add properties including the Mandalay Bay and Circus Circus.

Casinos "will probably continue to do well in a growing economy," said Eric Misenheimer, who oversees $1.1 billion of high-yield, high-risk bonds as fund manager at Northern Trust in Chicago. "It's clear that MGM is setting up for Mandalay."

MGM MIRAGE's second-quarter earnings more than doubled to $105.8 million as more travelers visited their casinos. It sold $400 million of five-year notes Wednesday as an add-on to an existing $600 million issue last September. Proceeds are earmarked to pay bank debt. The new notes yield 2.28 percentage points more than benchmark Treasuries, less than the average spread of 2.42 percentage points for BB debt.

"We're very pleased with the market's reception for our securities," MGM Chief Financial Officer James Murren said in a statement issued through spokeswoman Yvette Monet. Company executives "will keep our options open" on how to fund the Mandalay purchase, Murren said, declining to comment further.

MGM MIRAGE bonds weakened after the company first bid for Mandalay on June 4 on concern the acquisition would be largely debt-financed. The securities have since gained as some investors considered the scenario of a stock-funded buyout, Northern Trust's Misenheimer said.

Moody's Investors Service said last month it may cut MGM MIRAGE's credit rating on concern its planned purchase of Mandalay will be financed with new debt. "The ratings of the combined company could be confirmed at Ba1 if the transaction is not entirely debt financed," Moody's said in a research note.