Casinos jump as MGM announces funding

Associated Press

Wednesday, Oct. 29, 2008 | 1:05 p.m.

Casino stocks surged Wednesday as heavyweight MGM Mirage reported funding commitments for its CityCenter project and investors jumped back into the sector as the Federal Reserve cut a key interest rate by half a percentage point.

The casino sector has been struggling as consumers continue to curb spending due to the ongoing housing downturn, diminishing credit, rising food costs and recession worries. Some companies have also had to delay or cancel development projects due to funding difficulties.

The group got a boost as the Fed reduced the federal funds rate, which was at 1.5 percent, to 1 percent. The rate is the interest that banks charge on overnight loans.

Earlier in the day MGM Mirage reported its third-quarter profit slid 67 percent, partly on a write-down. However, analysts focused more on cost the company's control and funding efforts.

MGM, which obtained a $1.8 billion senior bank credit facility earlier this month to help with its $9.2 billion CityCenter project in Las Vegas, said it has received additional commitment letters for more than $500 million and is working with joint venture partner Dubai World to get additional funds. The company is looking to secure a total of $3 billion in financing for the development.

Jake Fuller of Thomas Weisel Partners was pleased that MGM discussed during a conference call with analysts a $400 million reduction to CityCenter's budget -- making the project easier to fund -- and a lower-than-expected estimate for 2009 capital expenditures of $200 million.

Stifel Nicolaus & Co.'s Steven Wieczynski said the cost cuts, coupled with the suspension of further development of its MGM Grand Atlantic City project and a joint venture in Las Vegas, should help the stock.

"Any gaming operator that postpones spending and preserves capital in this environment should be rewarded, in our view," he wrote in a client note.

MGM's stock soared $3.69, or 35.7 percent, to $14.02 in afternoon trading. The stock has ranged from $8.91 to $94.10 over the past year.

Investors, hopeful that the Fed would likely to cut a key interest rate by as much as a half point or three-quarters of a point later Wednesday afternoon, also bought back into the sector while casino operators' shares languished at bargain basement prices due to recent fears a recession was imminent.

Shares of Las Vegas Sands Corp. nearly doubled, adding $4.76 to $9.71. The stock had fallen as low as $4.32 earlier this week.

Elsewhere, Wynn Resorts Ltd.'s stock gained $11.11, or 33.8 percent, to $43.99.