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MGM Mirage gets debt waiver, swings to quarterly loss
Justin M. Bowen
MGM Mirage, owner of several casinos on the Las Vegas Strip, reported earnings on Tuesday showing the company fell to a loss in the fourth quarter.
Published Tuesday, March 17, 2009 | 2:42 p.m.
Updated Tuesday, March 17, 2009 | 6:28 p.m.
MGM Mirage Financial Information
| 4Q 2008 | 4Q 2007 | % Change | 3Q 2008 | |
|---|---|---|---|---|
| Revenue | $1.8 billion | $2.1 billion | -14 % | $2 billion |
| Net income | ($1.1 billion) | $872.2 million | -- | $61 million |
| Net income per share | ($4.15) | $2.85 | -- | 22 cents |
MGM Mirage today reached an agreement with bank lenders that will give the company more time to figure out a solution to the company's cash crunch.
Instead of granting bank lenders collateral in the company's assets – one of many scenarios contemplated by lenders in the downturn – MGM Mirage has agreed to repay some of the money it owes and pay a higher interest rate.
"It could have been contentious. It could have failed, but it was not," MGM Mirage Chairman and Chief Financial Officer Jim Murren said Tuesday during a conference call to discuss the company's fourth quarter earnings. "This is just the first step but an important step toward a long-term solution to our liquidity issues."
Also today, MGM Mirage reported one of its worst financial quarters in more than a decade. The company posted a loss of $1.1 billion, or $4.15 a share, for the fourth quarter of 2008, compared to an $872.2 million profit, or $2.85 a share, during the same period a year earlier. Total revenue fell 15 percent to $1.8 billion over that period.
Room revenue across the company’s properties fell 21 percent in the fourth quarter. Average daily room rates at MGM Mirage’s Las Vegas properties fell 15 percent to $133 from $156. The company’s average room occupancy dropped to 85 percent, compared to 93 percent in the same period last year.
Gaming revenue decreased 17 percent in the quarter.
This waiver announced Tuesday appeases creditors who are owed billions of dollars and will be in a position to demand immediate repayment this year, as the company is likely to default on certain financial requirements.
MGM Mirage said bank lenders have agreed to waive those requirements until May 15.
One of these requirements, which is proving a problem for many gaming companies in the downturn, is that company debt be manageable relative to earnings. MGM Mirage said it is expected to default on these financial requirements as of the end of this month. That could trigger payment on the company's debts, including money raised for the company's CityCenter joint venture.
The company said it risks defaulting on these financial requirements after the May 15 deadline.
In exchange for the waiver, MGM Mirage said it will pay $300 million that is owed on its senior secured credit facility and pay a higher interest rate on that piece of debt. The temporary waiver also includes a prohibition on new investments, accumulating additional debt and the sale of casino properties.
Some investors say the company is running out of options. Even if negotiations with banks buy more time, MGM Mirage's best option may be seeking Chapter 11 bankruptcy protection from creditors, they say.
Today, Murren said the company's relationship with bank lenders goes back more than a decade, with many banks also underwriting the company's bonds. He called recent negotiations "constructive" and "friendly".
Some observers say bondholders will be more willing to negotiate other options rather than force the company into bankruptcy court, where they are likely to receive cents on the dollar. Bondholders could receive bonds with longer maturity dates at higher interest rates – an option explored by competitors. But that might be a band-aid approach to a bigger cash flow problem, critics say.
Murren said the company is "considering all our options and are committed to finding the best solution" – including raising additional debt and equity, modifying credit agreements and selling properties.
"I have no illusions that this is going to be easy," he said.
Executives also said the company is committed to opening CityCenter in stages, as planned, starting late this year.
Delaying or slowing down CityCenter by a few months to wait for better times would be an ineffective and inefficient bet in an uncertain economy, CityCenter Chief Design and Construction Officer Bobby Baldwin said today.
Addressing concerns about souring demand for condos and a lack of financing for condo-hotel units, Baldwin said he expects at least 75 percent of CityCenter’s condominium purchase contracts – which now total $1.6 billion in contracted sales – to close escrow beginning in the fourth quarter. Some buyers intend to pay cash for their units, he said.
MGM Mirage must put $500 million in equity into CityCenter, which it owns with joint venture partner Dubai World. Murren said Dubai World executives remain “steadfast partners” who are sympathetic to the company’s troubles in the global downturn. More than $1 billion in financing is still needed to finish CityCenter.
After recent cost savings, CityCenter’s construction budget has fallen from more than $9 billion to $8.7 billion.
MGM Mirage has cut about $700 million in operating costs from the business since it began a cost-savings program last year. Most of those cuts represent permanent changes in how the company does business rather than temporary trims in payroll or other volume-related expenses, Murren said.
The company will only spend $200 million on capital improvements related to property maintenance this year, down from highs of several hundred million dollars in previous years.
In a separate earnings announcement, MGM Mirage said it continues to achieve high rates of hotel occupancy in the poor economy by lowering room rates.
Non-gaming revenue, excluding rooms, fell 9 percent – the lowest of any category. New entertainment options are driving revenue, the company said.
MGM Mirage recently opened a new show at The Mirage with Terry Fator and will begin performances of “The Lion King” at Mandalay Bay in May.
Last year, revenue at MGM Mirage fell 6 percent to $7.2 billion as a result of decreases in market conditions, the company said.
MGM Mirage shares were down nearly 6 percent in normal trading on the New York Stock Exchange, then dropped about 2.6 percent in after-hours trading. The company’s announcements came after the closing bell.
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I have been in the travel industry for many years, sending many people to Vegas. Why so much worry, there was much life in Vegas proir to MGM's strangle hold. MGM has been raping,robbing and pillaging the tourist for years now. Maybe their current demise will be a blessing in disguise. They have to spent hours on end, dreaming of new ways to bleed every penny out of the tourist. I have heard for countless people, what happened to the "Real Vegas, not an Orlando makeover"? It's my opinion, Vegas would be much better with many independent casino owners, instead of one "Bully" corperation. I'm very interested in hearing the opinions of frequent visitors to the Vegas area.
I have lived in Las Vegas for over 30 years, and the memory of the prices at the resorts here in those days is still fresh in my mind. Las Vegas was an affordable resort destination back then, and the Hotels were dedicated to doing everything possible to attract the tourists to Las Vegas, including extremely reasonable room rates. Now, having built Mega resorts all along the strip, costing hundreds of millions of dollars, the room rates alone are a deterrent to visiting our city. Add to that the absorbatant prices in the hotel bars and restuarants, and for what it costs to come to Vegas for a few days, you can afford to go on an all inclusive Cruise, which also includes gaming, or any other number of vacation destinations, for less money. Why do we need a City Center, or a Fountaine Bleu, or any of the other under construction Mega resorts, other than to feed the egos of the Corporations that own them? Maybe MGM Mirage would be in much better financial shape if they concentrated more on the service, attractions, and staffing levels at thier existing resorts, rather than building more monuments to corporate overindulgence and lack of foresight?
I have come to the conclusion that this site is frequented by illiterates.
The layoffs are coming. Thank you sen Reid and especially for the good advise to avoid this city President Obama. Anything to make you look good, even our jobs.
Dearest Neiman, Please advise when President Obama told everyone to avoid Las Vegas. Additionally, please describe why you think he should have told bailout recipients why they should come to Las Vegas on taxpayer money to live it up. We all can't wait to hear your response.
By the way, you should have said "advice" instead of "advise." We forgive.
matts, if it is as easy as neiman 1 says, let's get President Obama to tell him to stay away from LV and this website. That goes for the illiterates spotted by tvegas as well.
Obama did use the words "Las Vegas" in a negative context.
It was not a big endorsement to encourage businesses to have their annual conferences in Las Vegas.
That violates 101 politics. Most, if not all, politicans know not to use names of cities full of voters in a negative context.
It is puzzling that Obama would do something so boneheaded.
He has tons of experience as a state senator. That prepared him so well to be President.
But it is not a big deal.
Nobody really cares what Obama says.
jfinance32, have you ever read or heard what Obama said?
To quote: "You can't get corporate jets, you can't go take a trip to Las Vegas or go down to the Super Bowl on the taxpayer's dime,"
Most sensible Americans will agree with this. My company goes for ShoWest to Vegas and I know what the costs are and how room rates spike that week. It is our company's expense. With the state of our economy I would not want a single cent of my tax money (bailout funds) to pay for these type excursions. Everyone I know and hear talk about this in Los Angeles agrees. Don't blame the President of Vegas' situation.
As for jfinance32 and others. This article was not about the President but the situation of MGM (not Obama's fault either). The point is that all these companies over-expanded and thought American would never stop spending money
Basically Vegas' problems are a result of one thing: CORPORATE GREED
Here you have a person in the tourist industry telling people to spend their money outside Vegas, and a resident who is concerned about his hometown. And what do you add, spelling, grammer and Obama? Hmmmmm....is this to far over your head? This is about one company (MGM) and how their strangle hold is crushing the life blood out of Vegas.
Currently, MGM owns and operates most all Casino/Hotels in Vegas, collecting most all the money spent there. So lets look at what MGM gives the tourist, in exchange for all that money. First there are room rates, which far exceed the rooms value. Then there is the entertainment, designed for the "Family" tourist. Vegas was built on Glitz and Glammer, for the average person. What happened?? Well, if the tourist was looking for circus acts, I would guide them to Disney. Which by the way, is the home of MGM's circus act. If you don't like a circus act, they have a "PG RATED" magic act. This has attracted the "Shorts and T-shirt" tourist, with their baby strollers. What happened to the classy atmosphere? Of course, there is always the ultra-lounges if you are 25yrs old, they are full of Glitz and Glammer. But think again, MGM caters to the Paris Hilton crowd. The average person could hardly afford the cover charge for more than one night, much less a bar tab. MGM is batting 100% here..? Ooops I forgot, there is Crazy Horse, the ONE adult style show within MGM. That's great, if you have $150 a person and enjoy a great light show. Of course MGM will say, "What about our music shows?". That would be wonderful, if they were top line artist. Instead, they give us old has been entertainers who are on the last leg of their career. I'm sure that we (the tourist) should be grateful for all this, in exchange for most of the money brought into this town. Hmmmm
So if MGM has steered Vegas in such a great direction, why is the tourist industry offering so many other options to their tourists? We have many tourist (couples), with about $3000 to spend on their vacation. We are sending them to the Sandel's Resorts, or to any of the islands. And for the tourist on a budget, cruising is a better value for the dollar than vegas. Believe it or not, they still require proper dress for dinner. It would be fantastic, adding Vegas back into our options for adults. That is, if MGM loses it's strangle hold and Vegas stops trying to re-create Orlando.
I hope this content is not over the heads of the spelling and grammer fanatic. Vegas is truely a world class vacation spot, just under MGM's very mis-guided leadership.
Wait until your job is gone.. Then defend the First Mouth.
read how bad it really is at the MGM
http://www.bloomberg.com/apps/news?pid=2...
Neiman1, Is still in denial that Bush ruined Americas economy.He forgets Bush and McCain said the economy was resilient and fundamentally strong. .Anyone who has read his posts is aware he is the illiterate one.
Las Vegas priced itelf right out of the convention dollar and working people (those who still have jobs after Bush) are saving their money. One must not be very smart to constantly have Reid and Obama in their gun sights when the village idiot knows it was Bush and his right wing cabal who masterminded this night mare. He and McCain could not wait to give AIG TARP money with no over sights.
What would Neiman know about a job? He lives with his mom and spends the day riding his skate board. Neimann1's only rant is Reid and Obama he knows NOTHING else. It makes no difference what the article is about he is so ignorant he only knows Reid And Obama forget the issues at hand. He seems to forget the stimulus plan had 40% of Republican pork.
It was unfortunate wording Obama used in warning corporations about wasting tax payer money. His point was right on but he is much to smart to have mentioned specific places.
Corporate America is tired of $1000.00 a night rooms and $300.00 bottles of liquor. Vegas needs to rethink how to keep their customer base.
Neiman1 He has a flare for the obvious. Harrahs,Stations,Herbst,Randy Black,Arizona Charlies,Sands,all are headed for bankruptcy. It will be Reid and Obamas fault, just wait for his blather which is forthcoming along with gas prices, socialism and drill baby drill. On and ON and On. Like the rest of us are not aware of Boomberg and ten other sites like Bloomberg.
"Wait till your job is gone then defend The First Mouth",this statement proves his ignorance and dependance on Rush for talking points.
"Basically Vegas' problems are a result of one thing: CORPORATE GREED"
This is true .. too true!
Hey guys,
Don't be too hard on neiman1. Ranting about Obama every day gives him something to wake up for tomorrow.
Always remember and never forget: You can teach an old dog new tricks but you can't teach a dumb dog nothin'.
we used to stay at the Luxor all the time, no more, we were charged $30 for a can of red bull which sells in a supermarket for around $2
This is what the MGM group do they rip the public off, many British people like us feel scammed on casino prices because they think you are a captive audience, MGM group is a monopoly and should be investigated under such laws.
I hope all this changes the industry so we can go and have a good time..I canceled 3 trips to vegas this year becuase i knew that it was better to stay home and gamble at an indian casino becuase the odds are the same and the rooms were free....i want to come back but you cant have fun in veags unless your bring $ 5,000 who has that to burn right now
Rocco, you have an incredible and INTELLIGENT point of view but I can guarantee that the illiterate and ignorant will continue to blame Obama.