MGM Mirage looks to raise us$ 2.5 billion in capital

Las Vegas-based MGM plans to use approximately us$ 1 billion in proceeds from an 81 million public stock offering and a us$ 1.5 billion private placement of senior notes in part to pay off debt issued by its Mandalay Resort, that matures later this year, as well as debt issued in connection with its Mirage Resorts and at least us$ 750 million of a credit line.

MGM, which is majority owned by billionaire Kirk Kerkorian, has been working to improve its financials and pull itself out from under a mountain of debt. A newly amended senior credit agreement gives the company a little more breathing room. The amendment allows MGM to permanently waive any potential default from the inclusion of the term “going concern” in its 2008 and 2009 financials.

A going-concern qualification refers to the auditor’s assessment of a company’s ability to continue to operate for the foreseeable future.

Kerkorian’s Tracinda Group, which currently holds about 53.8 % of MGM’s stock, plans to buy approximately 8.1 million shares from underwriters. MGM Mirage had about 276.6 million outstanding shares as of May 5, according to a filing with the Securities and Exchange Commission.

The private placement will include two tranches due 2014 and 2017. The notes will be secured by a first priority lien on the Bellagio Hotel and Casino and The Mirage as well as a first priority pledge of the equity interests in Bellagio LLC and Mirage Casino-Hotel once the necessary gaming approvals are received.

The struggling casino operator, burdened with about us$ 14.4 billion in debt as of March 31, has left investors and analysts speculating how it would resolve its liquidity problems but the company indicated last week that it was close to announcing its plans. Many assumed MGM’s game plan would include tweaking its existing debt agreements, raising capital and possibly some asset sales.

Last week the company recorded a hefty gain from the sale of its Treasure Island hotel and casino in Las Vegas in its quarterly report. The company also reached a deal last month with CityCenter partner Dubai World and the pair’s lenders to complete the us$ 8.5 billion Las Vegas project.

The CityCenter agreement was welcome news, as some investors and analysts had feared MGM might be on the brink of filing for bankruptcy protection if it could not work out the remaining financing necessary to finish the development.