Big Day For MGM

MGM Mirage, Dubai World and their lenders have hammered out a deal to finish a $8.5 billion Las Vegas Strip development sending its shares higher in Thursday premarket trading, but analysts said the casino operator still has a ways to go to escape its debt burden.

Late Wednesday Las-Vegas based MGM said it reached an agreement with Dubai World, the investment arm of the Dubai government, and their banks for CityCenter’s completion. Dubai World will drop a lawsuit filed against MGM.

Both the casino operator, which is majority owned by billionaire Kirk Kerkorian, and Dubai World will finance their remaining CityCenter payments with letters of credit. In turn, the banks will immediately fund $1.8 billion to finish the development, instead of waiting until each partner had fully paid its share.

MGM’s stock jumped $2.75, or 44.5 percent, to $8.93 in electronic premarket trading.

The CityCenter agreement is a positive for MGM, according to analysts, as some had feared the company was on the verge of filing for bankruptcy protection.

“This is a major win for MGM in that it frees the company up to focus on its more serious problems,” Bernstein Research’s Janet Brashear wrote in a client note.

But the analyst cautioned that she considers MGM a “very speculative investment” in the near term until it outlines a plan to restructure debt. MGM had more than $13 billion in debt at the end of last year.

Steven Wieczynski of Stifel Nicolaus & Co. said the CityCenter deal gives MGM some breathing room to sort out its debt concerns, but the analyst predicted the company would still need to sell some assets and possibly a capital infusion because its amended credit agreements will apply pressure in June – when one is set to mature – and at CityCenter’s completion.

“Selling assets (Bellagio, Vdara) would help reduce debt levels but the number of qualified buyers remains next to none. If in fact MGM can sell assets or find suitable financing, we believe equity value would expand rapidly,” Wieczynski said.

The analyst maintained a “Buy” rating on the shares, but said his $6 price target is under review.