Fitch lowers MGM MIRAGE ratings on Vegas worries

Feb 11, 2009 10:58 PM
Staff & Wire Reports |

Fitch Ratings cut MGM MIRAGE's issuer default rating and outstanding debt ratings Wednesday, citing its concerns with the Las Vegas market and funding for the casino operator's CityCenter project.

The casino sector has struggled as consumers continue to tighten their discretionary spending due to the ongoing housing slowdown, diminishing credit, increased food costs and unemployment concerns.

The Las Vegas market has been particularly hard hit by real estate woes. Casinos have also come into trouble as they have increasingly shifted more of their emphasis toward non-gaming components such as food, entertainment and hotel rooms and have come under pressure as consumers spend less in those areas.

Fitch reduced MGM's issuer default rating further into junk status with a "B" rating from a "BB-" rating. The agency kept the Las Vegas-based company's outlook at negative.

Fitch said the recession has led to lower airline capacity and softer international demand, which has caused Las Vegas visitation to drop off.

The ratings agency said it "believes companies with heavy Las Vegas Strip exposure will exhibit significant negative operating leverage in upcoming quarters, as they compete to fill hotel rooms and generate traffic."

Fitch is also concerned that MGM has not completed the funding needed for its $9.2 billion CityCenter joint venture, which will pressure the company's balance sheet further since it provides cash for the development.

Also on Wednesday, BMO Capital Markets analyst Jeffrey Logsdon slashed MGM's price target to $19 from $30 on Las Vegas concerns. A day earlier Susquehanna Financial Group's Robert LaFleur lowered the company's rating to "Negative" from "Neutral" on the Las Vegas troubles.

MGM's stock fell 14 cents, or 2.5 percent, to $5.38 in midday trading. The stock hit a fresh 52-week low of $5.31 earlier in the session.

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