Two Way Hard Three | Las Vegas Casino & Design Blog

According to the WSJ, investor Carl Icahn and Oaktree Capital, a private equity firm, have been buying up MGM Mirage bonds and are pushing for the company to file bankruptcy.

More as it develops.

Update: WSJ link.


Read archived comments (21 so far)
April 16, 2009 2:03 PM Posted by Brian Fey

Ichan can encourage all he wants, but Kirk will never go for this. Kirk would lose everything he has in MGM if this was to happen.

April 16, 2009 2:27 PM Posted by mike_ch

Any word on how much this group has invested? So far all I've seen is "hundreds of millions of dollars."

April 16, 2009 2:51 PM Posted by Brian Fey

These guys could have made much more money, investing into MGM, and helping them, rather than trying a scare tactic to try and push them into bankruptcy. I bet they are shorting the stock, and trying to drive it down, or perhaps they want to go long the stock, and are trying to push the stock lower. Either way, I still don't think it happens. MGM has dozens of assets they would sell at fire sale prices, before they'd file. Kirk will walk away with nothing, if this happens, he's invested his life into this company, in both money and time. They go bankrupt, the stock goes to 0, and Kirk would have to walk away with absolutely nothing. I know James is the CEO, but don't think every decision isn't ran by Kirk first. Kirk is the one who set the price for TI, and agreed to the final sale price. Jim's name might be on the office door, but Kirk is the real captain of this ship. And don't anyone tell me there are no buyers, we all know, Wynn, Penn, Boyd, and Binion all have money burning a whole in their pockets, not to mention other investors, and private equity firms.

April 16, 2009 3:53 PM Posted by parchedearth

Icahn would have to wait for MGM to miss an interest payment before forcing a bankruptcy. I don't think much of the outstanding debt comes due before 2011. I would think MGM has enough cash to make basic interest payments. Although this cash is likely needed to keep funding CCenter.

More likely, Icahn wants to force a sale of some properties to his own people. We need to know more about how much and what types of bonds he is buying. It would also be interesting to know whether he is pursuing specific properties. Alternatively, he could be looking for a hostile takeover. This would fit with his reputation as a corporate raider.

Kirk's assets are mostly tied up in MGM stock. I seem to recall he sold his positions in several other companies earlier this year so he could concentrate on MGM. I don't know if he has enough cash to save himself from this situation.

I think its starting to look inevitable that MGM/CCenter ends up in bankruptcy. It's probably better for the company (and the properties themselves) that it happens sooner rather than later.

April 16, 2009 3:59 PM Posted by Brian Fey

Really what would make sense, is for Boyd to buy Mirage. That would free up the pressure on MGM, and it would give Boyd a presence back on the Strip. Lets say it brings $1.2-1.5, that would be a fair price, considering all their land, their 2 theaters, events center, etc. Boyd has open credit for that much now, they don't need a gaming license. This would be a money maker for them, since looking back now, they should never have leveled Stardust. This would give them a world class property, in the center of the Strip, and they could get this for a small fraction of what Echelon was going to cost, and have a better location. Wynn don't need anything, but Penn could, and Boyd really could.

April 16, 2009 4:27 PM Posted by mike_ch

Boyd would be a good buyer for Mandalay Bay, IMO.

It would also give them the same kind of convention/entertainment facilities they wanted to include in Echelon but obviously won't be happening soon.

April 16, 2009 6:25 PM Posted by Brian Fey

There is a new story in WSJ that just posted, its has much more detail, and puts a more positive spin on things. It discusses several possibilities. This all took place weeks ago, it sounds like, but it just now being made public. I think this probably happened when the stock was in the sub $2 range. There is very little supply of stock after hours, so its pretty easy to drive a stock down quickly. I think the short term fate of their stock price lies with how the market trades tomorrow. GE and Citi both report tomorrow, if they surprise, and the market rallies, I think MGM's stock won't suffer too badly, but if the market opens really low, we might be in for a beating. We'll see. I'm either going to get rich off MGM or go broke, but either way, I'm sure to take about 5 years off my heart, either way it goes. Following MGM as closely as I do, is a emotional roller coaster. :)

April 16, 2009 6:29 PM Posted by Brian Fey

Mike - I agree with you on the MB Boyd purchase, that had not crossed my mind to be honest. In reality, MGM could unload another few properties, and revenue could still increase. In theory, City Center should do 3-4 times the revenue of some of their older smaller properties, and even after they split the profits, their half could equal the profits of a TI, MC, & NY NY potentially.

April 16, 2009 9:32 PM Posted by Tom M.

In my view, City Center is so overleveraged as a project that even if it survives it won't be profitable at all due to the debt load. I think MGM is going to have to go into bankruptcy eventually. Also, Kirkorian is 91ish and I doubt he has the energy and vigour that he needs to devote to this kind of crisis. I suspect that he won't live long enough to see this company recover. So the real question is what happens to the company if he passes in the next couple of years.

April 17, 2009 2:17 AM Posted by Doug

I think this is a move by Ichan to buy one of the MGM strip casino properties at a firesale price. Didn't he own part of the Strat a while back?

April 17, 2009 8:10 AM Posted by Mark D

This is a standard raid tactic that Ichan has used successfully in the past. He took control of the Stratosphere and Arizona Charlie's by buying bonds and forcing bankruptcy. He made over a billion when he resold those and probably sees a similar opportunity, on a much larger scale, in MGM. Though, with MGM's resources, it's likely they can fend him off.

April 17, 2009 8:23 AM Posted by motoman

Interesting. Doug, I was just reading how Icahn made a play for the Strat not long after it opened, also by buying outstanding bonds of a bankrupt corporation.... (Shocking that completion of its second hotel tower cost a cool Billion!)

Haven't posted here in awhile, but I've been silently nodding in agreement with mike_ch's very well elucidated Wynn Bellagio reacquisition scenario. Especially since the B was Steve's former crown jewel and the only place that could be run to his standards without his trademark, and now impractical, implosion-and-rebuild. Detroit's comment that he would switch from Wynncore to a Wynn-run Bellagio recalled Hunter's question awhile back, as to whether people respond to the design of Wynn's places or to the Wynn "brand." I had argued "design" since so many Vegas visitors don't know or care who the players are, but it seems detroit would say "both."

When the potential CityCenter default was all the news, I had my own fantasy dream Sweet Revenge scenario: Wynn, cash-rich and bolstered by stock offerings, makes a hostile bid for MGM Mirage in toto. He calls it a "friendly deal," and proceeds to sell off properties to fund his refurbishment of Bellagio while keeping the golf course at WLV (and also having Shadow Creek back in his stable.) Recent MGM stock gains make that pipe dream even more impossible, but I also like Lance's Frontier/Plaza bridge idea, for Wynn to build on that site thus controlling the views, and saving the golf course. Perfect. (Oops, strayed off topic here. Sorry.)

April 17, 2009 1:50 PM Posted by Brian Fey

MGM and Dubai, make a deal! Now we could be off to the races!

April 17, 2009 1:51 PM Posted by NavinR

Wow headline news in the WSJ this morning! This is getting interesting!

The MGM press release today, which shot the stock up 30%, seemed to fire a punch at Dubai World. MGM made their bond payment as well as DW's. The animosity is clearly up a level, as the press release made sure to mention this fact.

My guess is that we will see MGM part ways with some properties soon. Do you remember Lanni said a few years back that he envisions the company more of a manager of properties than an owner? That could become reality soon.

April 17, 2009 3:59 PM Posted by mike_ch

Brian: Not quite. From the RJ:

Spokespeople for both MGM Mirage and Dubai World, however, backed away from saying a deal was finalized. Both sides said talks are continuing toward a plan to fund the remaining costs to complete CityCenter.

“We are having productive conversations with our partners and our lenders,” MGM Mirage spokesman Gordon Absher said.

April 17, 2009 4:18 PM Posted by parchedearth

All this mean is that MGM and DW have agreed to continue as partners (i.e. the lawsuit will be dropped). DW will probably get some concession (e.g. increased equity).

They still need to obtain the financing to finish the project. Until they can come up with another $800M, they won't be able to access the 1.8B credit line unless the banks grant a waiver. In this market, such a waiver is going to be costly.

They are going to need at least $1.2B from the sale of properties just to finish CCenter. Then, they are going to need another $500M to operate it. And, I'm guessing they also need $500M to cover the interest costs for the first couple years, until they can sell all the condo units. None of this will actually go to paying down their debt.

April 17, 2009 7:50 PM Posted by socalduck

The idea of Boyd buying M-B is intriguing. With three distinct room products (M-B, THEhotel, Four Seasons), a full-service convention & events facility, some excellent restaurants, and one of the best pool complexes in Vegas, M-B offers a turn-key opportunity for a potential buyer. While Bellagio is a beautiful trophy property, if I had to run one of these things day-to-day, a resort like M-B offers a lot more opportunity and flexibility for revenue-generation. I've been skeptical of all the speculation regarding Bellagio's impending sale. However, on this basis, perhaps selling Bellagio does make sense.

April 17, 2009 11:17 PM Posted by Arthur Tran

If you ever own a company, you DO NOT want Carl Icahn buying your debt bonds...!! Thats a moral of Wall Street.

April 21, 2009 4:49 AM Posted by Doug

At this point I don't think Wynn would be interested in anything but the 'Plaza land' across the street from Encore. My reading of Steve Wynn is that he would rather build a new resort than 'go home again'. And maybe at 67 years old and looking for a house with his new girlfriend in LA he might not be interested in anything at all. And I don't think the golf course re-development is ever going to happen - And I think that's good for the Las Vegas Strip.

Bellagio will always have a loyal following, but my feeling is Aria is going to be top dog when it opens and Bellagio will start to feel old - and Wynn knows this.

Card Ichan...well, I wouldn't be surprised if he ended up with the Excal or Circus Circus out of this move. And I hope he does - it would probably be a big relief to MGM.

April 22, 2009 10:36 AM Posted by Anthony

Mirage up for sale next?

April 22, 2009 4:45 PM Posted by Jeff in OKC

I think this story is pure speculation. I have a couple issues I hope someone can explain to me. As I read it, the story makes me think that either the e-z pay terms and low down payment are so good that Penn can't pass it up, or the final price is so cheap that Penn can't pass it up. My issue being if that were true, I would think that everyone on the lending side would much rather have Wynn or Boyd involved and the implied low down payment would make the deal very attractive to both Wynn and Boyd. Also, if the total price wasn't a low earnings multiple, why would Penn suddenly go against their mantra of not buying if the deal doesn't make financial (off Strip) sense.