Report: Icahn, equity fund push for MGM bankruptcy

Published Thursday, April 16, 2009 | 3:11 p.m.

Updated Thursday, April 16, 2009 | 7:11 p.m.

Headlines from the Vegas gaming industry

MGM Mirage gets waiver for $70M CityCenter payment (4-13-09)
Dubai World wants assurance of CityCenter funding (4-10-09)
MGM Mirage stock surges on corporate financing news (4-6-09)
MGM Mirage hires investment firm (4-4-09)
Australian businessman weighing CityCenter investment (4-3-09)
CityCenter contingency plan emerges; investor shows interest (3-28-09)
CityCenter safe — for now (3-28-09)
In a recession, a delay could be seen by rivals as a positive development (3-28-09)

Investor Carl Icahn and private-equity fund Oaktree Capital Management have bought hundreds of millions of dollars of MGM Mirage bonds and last month told the gaming company a bankruptcy is its best option, the Wall Street Journal reported today, citing people familiar with the matter.

Icahn and Oaktree said they would back a bankruptcy filing, these people told the Journal.

The Journal said it was told by an MGM Mirage spokesperson that the company "and its advisers remain engaged in constructive discussions with its lenders."

The Journal said Icahn's strategy is not clear, though he could be after some of MGM Mirage's assets. Icahn, who formerly controlled the Stratosphere and two Arizona Charlie's in Las Vegas, is now bidding to buy the Atlantic City Tropicana.

MGM Mirage is wrestling with $13 billion in debt as the economy has reduced visitation to its resorts and as it needs funds to finish the CityCenter project. The company and analysts say it could stay out of bankruptcy by using several tools including an equity infusion, asset sales, debt exchanges and the swapping of debt for assets.

Absent such a solution, observers believe MGM Mirage could default on its debt.

"Fitch believes that MGM's impaired credit profile and medium-term financial challenges make default of some kind appear inevitable," Fitch debt ratings service said last month as it lowered MGM Mirage's issuer rating from "CCC," or substantial credit risk; to "C," or exceptionally high level of credit risk.

MGM Mirage stock closed today at $5.90, down 49 cents.

Discussion: 7 comments so far…

By tadco

4/16/09 at 3:48 p.m.

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Oaktree and Icahn can push for their agenda but this is not current news - mgm is down but not out and responsible reporting by the WSJ should have called attention to the positive developments at mgm since the oaktree icahn contacts with mgm took place - it is all public info - i wish the Sun would have made this clear - too many people get caught up in these kinds of emotional and shocking headlines!!!!
By CynicalObserver

4/16/09 at 3:57 p.m.

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Bankruptcy Code Section 1104 sets forth the grounds for appointment of a trustee in a Chapter 11 bankruptcy. The bankruptcy case law, bankruptcy appellate panel decisions, and Federal court decisions unanimously say there is a strong presumption in favor of leaving a Chapter 11 debtor in possession's management in place.

Neither MGM Mirage, nor any of its subsidiaries have filed a Chapter 11 bankruptcy, so any press discussion of the appointment of a bankruptcy trustee is premature, to say the least.

Newspaper and online headlines about the prospect for appointment of a Chapter 11 trustee over MGM Mirage, as well as "story text" suggesting that certain creditors of the company want a trustee appointed, are both defamatory and not supported by any facts in the public domain which would support a bankruptcy judge's appointment of a Chapter 11 trustee under Bankruptcy Code Section 1104, even if MGM Mirage filed a bankruptcy today.

There seems to be provable malice, and prospective economic advantage, to the people and companies allegedly saying that a Chapter 11 trustee should be appointed, let alone similar provable malice and potential economic advantage to those publishing those claims.

I suggest that The Sun's out of control writers stop writing about topics they have no intellectual ability to understand, and wait until (1) there is such a bankruptcy and (2) someone with standing actually files pleadings supported by facts, not wishes, justifying the appointment of a trustee.

The irresponsible journalism exhibited in the story above is terribly demoralizing to MGM Mirage's employees, harmful to its ability to attract customers at fair market prices, and may, as a practical matter be an unwitting part of someone's plan to make a lot of money shorting MGM Mirage stock.

Last time I heard, the SEC and Justice Department were taking a very careful look at manipulation of the press as a means of short sellers driving down stock prices.
By tadco

4/16/09 at 6:48 p.m.

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PLEASE UPDATE THIS ARTICLE - wsj HAS A SECOND RENDITION - MUCH DIFFERENT FLAVOR - THE LAST PARAGRAPH TELLS IT ALL - WSJ DID MUCH HARM TO MGM ITS SHARES AND ITS EMPLOYEES - VERY UNFAIR !!
By CynicalObserver

4/16/09 at 7:24 p.m.

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I looked at the Wall Street Journal article to which the Sun article refers. All of the online comments about the article, from people in the securities industry, think the Icahn/Oaktree story is part of a short sale stock manipulation. If you are interested you can go to wsj.com and look at the comments on the Wall Street Journal story even if you're not a subscriber.

Perhaps our dear Senator Reid has the juice to get someone prosecuted for stock price manipulation through rumor mongering in the mainstream print and internet press.
By neiman1

4/16/09 at 8 p.m.

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The facts could be the people holding the debt are ready to call it. Icahn holds the debt. He can file default anytime he decides. It's like the auto companies. File and move on them now, or wait until it's worse and file then. The bottom line is it will file and massive layoffs are in store.
By Sabibaby

4/16/09 at 9:49 p.m.

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We all saw this coming from a mile away. This shouldn't be a surprise to anyone at all -maybe the few who live in a fantasy land. It's a wonder they kept this charade up as long as they did!
By LVBear

4/17/09 at 3:28 p.m.

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I have no more sympathy for MGM's shareholders getting wiped out than I would for shareholders of tobacco companies or similarly despicable enterprises.

Might forcing MGM into bankruptcy result in it more likely being broken up and sold off piecemeal? Or, If Mr. Ichan's group gains management control, isn't it likely they would sell the company piece by piece, or run it for a few years like they did Stratosphere and a few other minor properties, then sell them to suckers?

Either way, the bloated MGM would be broken up, which would be a good thing, and some of the fools behind the CityCenter boondoggle would be unemployed, which is also a good thing. The worst potential buyer, Harrah's, is in no position to buy anything.

All this sounds like good news to me.
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