MGM Mirage (NYSE: MGM) is proving that if you go deep enough in debt and then make several last-minute repairs, your lenders and your accountant can be quite an understanding bunch.
The casino operator got a boost Wednesday after its accountant, Deloitte & Touche, dropped the qualifying language in its financial assessment. Deloitte & Touche now agrees with the company that "there is no longer substantial doubt" about MGM Mirage's ability to continue as a "going concern."
Investors should take note that MGM Mirage's optimism is based on several recent financial events. The company will need to do more to maintain momentum.
Old news, good news
MGM Mirage's winning streak started May 13, when the company said lenders had agreed to a sixth amendment and waiver to a senior credit facility, contingent upon the issuance of new stock and debt.
It then sold common stock, receiving about $1.1 billion. It also completed a private placement of two sets of senior secured notes totaling $1.5 billion. Some notes mature in May 2014, and some mature in November 2017.
There's a lot of fine print in the amended agreement with lenders, but the immediate headline is that MGM Mirage is back from the brink of bankruptcy, with some breathing room for repaying debt.
The company made its announcement in an 8-K filing after markets had closed on Tuesday. The declaration not only launched MGM Mirage's stock by 14.6% on Wednesday, but it also prompted more modest gains by peers such as Las Vegas Sands (NYSE: LVS) and Wynn Resorts (Nasdaq: WYNN), thus adding a welcome "up" to the industry's 12-month diet of "downs."
More fixes necessary
Despite the stock lift, equity investors still must contend with a weakened share price. On May 12, the day before MGM Mirage announced its stock offering, the stock closed at $12.40. The next day, the stock closed at $8.70 after the company said it would issue 81 million common shares.
The stock fell so far that MGM Mirage had to revise its offer to 164.5 million shares, including the underwriters' overallotment, at $7 per share so it could reach its goal of raising $1.1 billion.
Since May 12, the stock had been drifting downward. It closed at a low of $5.84 on June 23. So let's not dismiss the good news of June 24, but let's not get carried away, either.
In accountant-speak, MGM Mirage may be a going concern, but investors are right to ask where -- and when -- it is going.
For investors to feel a lot better, MGM Mirage will need a recovery-inspired increase in revenue, although a recession-defying revenue gain would be nice, too. It will need more cost-cutting, more asset sales, and a clearer picture of the prospects for its Las Vegas CityCenter project.
Otherwise, investors may get that queasy feeling -- as if they were stuck on the roller coaster of MGM Mirage's New York New York hotel/casino in Las Vegas.
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