NEW YORK, March 23 Fitch Ratings on Monday cut
its ratings on MGM Mirage (MGM.N) to one step above default and
warned a distressed debt exchange of the casino operator's
bonds "appears imminent or inevitable."
Fitch cut MGM's debt rating three notches to 'C', an
extremely speculative grade, from "CCC", and said it was unable
to give an outlook because of the debt's high level of risk.
MGM last week reported a fourth-quarter loss of $1.15
billion and said its banks had agreed to waive debt covenants
through May 15. Earlier in March, it warned that auditors had
substantial doubt about the company's ability to continue as a
going concern. For details, see [ID:nN17284539]
"Even if a coercive debt exchange is not part of a
near-term restructuring, Fitch believes that MGM's impaired
credit profile and medium-term financial challenges make
default of some kind appear inevitable," Fitch said in a
In a coercive, or distressed, debt exchange, bondholders
are typically asked to swap existing debt for new debt or
equity at less than the bonds' par value. Rating agencies count
this as a default.
MGM is exploring alternatives including asset sales to
improve its liquidity.
Fitch said Penn National Gaming Inc (PENN.O), Boyd Gaming
Corp (BYD.N) and Crown Ltd (CWN.AX) may be likely buyers of MGM
assets in the near-term, though it may be a challenge for the
companies to agree on prices.
"Selling an asset at a low multiple may enhance liquidity
to the detriment of the longer-term credit profile, which is
strained even if the company can get past the near-term
liquidity squeeze," Fitch said.
Raising new debt or equity would be challenging for MGM
unless Kirk Kerkorian, the casino operator's majority
shareholder, also "contributes a significant amount of
additional capital alongside investors," Fitch said.
"In order to maintain the equity optionality, Fitch
believes Kerkorian has strong incentive to exhaust all options
before a potential bankruptcy filing," the rating agency said.
"While that incentive supports the possibility of an equity
infusion, it also provides strong support for attempting a
coercive debt exchange, which would also be a positive outcome
from the banks' perspective."
MGM's bondholders may be unlikely to participate in a
coercive exchange, however, as they may recover more from the
debt if MGM filed for bankruptcy protection, unless MGM pledges
collateral against its bank loans, which would subordinate its
bondholders, Fitch added.
"A coercive debt exchange may be difficult to execute
because Fitch believes that unsecured bondholders have solid
recovery prospects under the current capital structure," it
said. "However, unsecured debt recovery would be affected by
MGM providing collateral to lenders as part of the
restructuring, which is a likely scenario in Fitch's view."
(Reporting by Karen Brettell; Editing by Chizu Nomiyama)