MGM

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009, for MGM Mirage (now MGM Resorts International). The company operates a portfolio of casino resorts in Las Vegas, Detroit, Mississippi, and joint ventures in Atlantic City, Illinois, and Macau. A significant portion of the quarter's activity was defined by the completion of the sale of Treasure Island (TI) and severe liquidity constraints driven by the global financial crisis and the ongoing development of the CityCenter project.

Key Financial Metrics

Note: Operating income in Q1 2009 includes a $190 million pre-tax gain on the sale of Treasure Island and $22 million in insurance recoveries related to the Monte Carlo fire. Excluding these items, operating income decreased significantly.

Material Changes vs. Prior Period

• Revenue Decline: Net revenue decreased 20% year-over-year due to a 32% drop in room revenue (driven by a 34% decline in Las Vegas Strip REVPAR) and a 16% drop in casino revenue. The decline was attributed to convention cancellations and reduced discretionary spending.
• Asset Disposition: The company sold Treasure Island (TI) for $600 million in cash and a $175 million note, recognizing a $190 million gain. This transaction significantly boosted operating income and cash flow.
• Debt Structure: Total debt increased to $14.4 billion. The company drew down its entire $7.0 billion senior credit facility. Due to covenant non-compliance and cross-default provisions, nearly all long-term debt ($14.36 billion) was reclassified as a current liability.
• Cost Reductions: The company reduced full-time equivalent staff by 16% compared to the prior year and implemented various cost-saving measures, including suspending 401(k) contributions and eliminating discretionary bonuses.

Guidance, Outlook, Risks, and Contingencies

Liquidity and Going Concern

Management has explicitly stated that the conditions and events described in the filing raise a substantial doubt about the Company's ability to continue as a going concern. As of March 31, 2009, the company was not in compliance with financial covenants under its senior credit facility. While a waiver was obtained through June 30, 2009, failure to secure further waivers or amendments could trigger an event of default, potentially leading to immediate repayment demands or bankruptcy proceedings.

CityCenter Project

The company is a 50% owner of CityCenter, a $8.5 billion development. In April 2009, the company entered into amendments requiring it to fund remaining equity commitments ($224 million) via irrevocable letters of credit and assume an unlimited completion guarantee secured by Circus Circus Las Vegas assets. The project is expected to open in late 2009, though the Harmon Hotel & Spa opening is postponed.

Risk Factors

• Credit Market Instability: The company faces higher interest costs and difficulty accessing capital due to credit rating downgrades by major agencies.
• Economic Conditions: Continued weakness in the housing market, employment, and equity values negatively impacts customer spending and convention bookings.
• Covenant Compliance: The company must maintain a leverage ratio of 7.5:1 and interest coverage of 2.0:1. As of March 31, 2009, the leverage ratio was 7.9:1.

Investor Verification Checklist

• Verify the status of the waiver extension for the senior credit facility beyond June 30, 2009, to assess immediate default risk.
• Confirm the cash collateral requirements for outstanding letters of credit and the impact on liquidity.
• Review the CityCenter funding amendments and the specific terms of the unlimited completion guarantee secured by Circus Circus assets.
• Monitor convention booking trends and average daily rates (ADR) for the second quarter to gauge recovery potential.
• Assess the company's ability to meet debt maturities in 2009, specifically $226 million due in July and $820 million due in October.