MGM shares surge as company says risk has lifted

Jun 25, 2009 12:29 AM
Staff & Wire Reports |

Shares of MGM MIRAGE (MGM) surged on Wednesday after the casino operator said last month's amendment to a credit agreement, as well as offerings of stock and notes, have erased doubts about its near-term ability to continue operating.

MGM shares jumped 79 cents, or 13.4 percent, in afternoon trading. The stock has traded between $1.81 and $39.50 during the past 52 weeks. The broader market was also trading higher after a surprise jump in orders for big-ticket manufactured items.

Analysts noted, however, that investors shouldn't be surprised by MGM's news.

"Nothing has changed. It's not like this was a great revelation," said Susquehanna Financial Group analyst Robert LaFleur.

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Last month, MGM completed a public offering of 164.5 million common shares at $7 per share, for roughly $1.1 billion in proceeds. MGM also made a private placement of $650 million senior secured notes due May 2014 and $850 million notes due November 2017. In addition, the company amended its credit agreement for a sixth time.

MGM's auditors had issued a going-concern qualification for the company in March, after MGM delayed filing its annual results and said it may default on its debt. A going-concern qualification indicates that the auditors have doubt that a company will continue operating.

In a filing with the Securities and Exchange Commission on Tuesday, MGM said there was "no longer substantial doubt" that the company can continue operating following the offerings and amended loan agreement.

MGM and other casino operators have been battered by a sharp drop in gambling and travel spending, as well as tighter credit markets, which have stalled or derailed several high-profile casino developments.

LaFleur noted that MGM still faces longer-term debt issues in 2010 and 2011.

While LaFleur said the Las Vegas-based company has resolved their near-term liquidity issues, he added that he is "frankly a little surprised that the market seems as positively surprised by this.

"I think we're in the kind of market where we react to what we suspect and then we react again when it becomes reality," said BMO Capital Markets analyst Jeffrey Logsdon. "I'm not sure where there's the gold star here other than to say they've come back from the precipice of economic peril to a company that can focus on operations."

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