MGM Mirage to sell shares, notes to pay off debt

LOS ANGELES (Reuters) - MGM Mirage (MGM.N: Quote, Profile, Research), the casino operator that has struggled to avoid defaulting on its $14 billion debt load, said on Wednesday lenders have agreed to let it raise up to $2.5 billion by selling new stock and bonds.

The news sent shares of Las Vegas-based MGM down about 23 percent, but its bonds surged.

MGM said it would privately place $1.5 billion worth of senior secured notes and aimed to raise about $1 billion in a public offering of 81 million shares. It plans to use the proceeds to pay off more than $1 billion of debt that matures later this year and at least $750 million of a credit line.

"This offering of shares is very dilutive for existing shareholders," said Majestic Research analyst Matthew Jacob.

The new offering would increase the company's share count by 29 percent, according to Goldman Sachs analyst Steven Kent.

MGM Mirage, which is controlled by billionaire Kirk Kerkorian, said the senior notes would be secured by a lien on substantially all of the assets of its Bellagio Hotel and Casino and the Mirage, both on the Las Vegas Strip.

The company had previously obtained a waiver from lenders, giving it until June 30 to bring borrowings in line with financial covenants that dictate the level of earnings in relation to debt.

As the worst recession in decades has kept more gamblers at home, highly leveraged casino operators like MGM have struggled to avoid defaulting on their debt.

"I don't know if this completely erases all of its liquidity problems going forward," Jacob said, "but it certainly buys (MGM) a lot more time and addresses the most acute liquidity needs and allows it to focus a little bit more on the current operations."