MGM Mirage credit line amended, shares fall

LOS ANGELES (Reuters) - MGM Mirage said on Monday its senior credit facility has been amended and it has finalized $1.8 billion of the $3 billion in financing needed to complete its joint venture CityCenter project on the Las Vegas Strip.

The announcements "show that the banks are willing to work with MGM to relieve potential balance sheet pressure," Goldman Sachs analyst Steven Kent said in a research note. "However, the credit facility amendment is also a potential signal that MGM will likely increase leverage on its balance sheet and operating conditions remain challenging."

Amid a broad stock market drop, MGM shares were trading down $2.14 or 10 percent to $18.88 late in the session on the New York Stock Exchange. Earlier, they fell as low as $17.01 -- their lowest level since 2003.

Casino stocks been under pressure over the past year as higher fuel prices and the subprime mortgage crisis have sapped consumer spending at the same time travel and financing costs have risen.

MGM said the new credit facility, which matures in April 2013, has received an additional $500 million in commitments and it expects to raise $3 billion in total to fund the project. CityCenter is a joint development with Dubai World.

The facility for CityCenter is initially priced at LIBOR plus 3.75 basis points through the construction period, MGM said.

Earlier on Monday, MGM said its senior bank credit facility has been amended, increasing the maximum total leverage ratio to 7.5 times cash flow.

Previously, the debt to cash flow ratio was set at 6.5 through September 30, 2009, stepping down to 6 on December 31, 2009.

The amendment also increases the pricing of the bank loan to as high as LIBOR plus 200 basis points should leverage exceed 6.75 times cash flow.

"The higher interest rate (both in terms of the new credit facility and higher than expected CityCenter financing cost) will be a drag on MGM's EPS (earnings per share)/FCF (free cash flow) going forward," Morgan Stanley analyst Celeste Mellet Brown said in a research note.

MGM has said it expects revenue from condominium sales to finance part of its CityCenter costs; but some analysts have questioned whether that strategy will work, given the chaos in the mortgage markets and declining property values in Las Vegas.

"In our opinion, the condo market on the Las Vegas Strip has a bleak outlook. There is too much supply coming online during an uncertain time," Wachovia Capital Markets analyst Brian McGill said in a research note on Monday.

(Additional reporting by Mark McSherry, editing by Gerald E. McCormick and Andre Grenon)