[mork]

I've been watching MGM for quite a while (I love Vegas and particularly love the MGM properties). I have also never shorted anything but I am very tempted to short MGM now.

About a month ago this thing was under $2 and as I type this it is at $13

The recent rise on announcing Q1 profits of $105M was thanks to the $755M sale of their Treasure Island property. Without that sale, they would have posted a substantial loss.

The only other news that has caused this 500% rise is that their City Center project ($9B property on the strip) has come to some financing arrangement that will guarantee its completion.

I could write a lot about City Center here - but I think this money hole is going to sink them. The market seems to believe it is going to save them.

In spite of Q1 "profits" and the security of the funds to complete the City Center project - all I can see is a company burdened by an insurmountable pile of debt ($13B and counting) and no real ability to continue to finance their operations which will certainly post losses for the rest of the year (unless they sell more properties).

I seriously expect that MGM will go into bankruptcy protection sometime in the next year or so. $600M in interest payments and $1.2B in bond payments due in 2009.

My question for discussion - why is the market supporting this stock so well for the past 5 weeks? Has the grim balance sheet somehow changed that I am missing?

Seriously considering shorting this one - does anyone have opinions on such a move?

 

[msimms]

If the company's balance sheet is in trouble and it looks like they won't be able to service their debt payments, the company will be at risk of default and their stock price will likely follow.
As for their stock price being too high, I think it can be best summed up by what Benjamin Graham said in his Intelligent Investor book. "Pascal said that 'the heart' has its reason that reason doesn't understand.' For 'heart' read 'Wall Street'.

 

[darrylgonzalez46]

If the company's balance sheet is in trouble and it looks like they won't be able to service their debt payments, the company will be at risk of default and their stock price will likely follow.
As for their stock price being too high, I think it can be best summed up by what Benjamin Graham said in his Intelligent Investor book. "Pascal said that 'the heart' has its reason that reason doesn't understand.' For 'heart' read 'Wall Street'.

well said, very true

 

[ethos1]

I seriously expect that MGM will go into bankruptcy protection sometime in the next year or so. $600M in interest payments and $1.2B in bond payments due in 2009.

My question for discussion - why is the market supporting this stock so well for the past 5 weeks? Has the grim balance sheet somehow changed that I am missing?

Seriously considering shorting this one - does anyone have opinions on such a move?

Based on the above - Yes I agree - short it

 

[Retired at 31]

Hope you jumped on that rather than posting here!

 

[mork]

d'oh! I actually didn't I am more paranoid about shorting something. The stock goes through pretty wild swings. From $13 down to $10 already.

They are doing a $2.5B offering in order to "reduce debt". Reading in between the lines, I think they are going to seek settlements with the bond holders. I think the banks are willing to negotiate.

MGM Mirage is a strange beast. It is to Nevada what the big 3 auto makers combined are to Michigan. If MGM starts cutting back its operations the implications on the Nevada economy are huge. MGM is the states largest employer (and largest taxpayer) with over 60,000 employees in Las Vegas alone. If/when City Center opens, it is expected to employ an additional 12,000 more!

The state of Nevada and Washington alike will certainly pressure the banks to negotiate new debt repayment plans.

I'm going to sit on the sidelines now for a bit. I'd like to short it prior to Q2 results being announced. Unless they sell more assets (unlikely) then they should be posting a hefty Q2 loss.

 

[mork]

This opportunity is presenting itself again. It is trading at $13.25 per share as I type this (up from ~$9 a week ago). This rally seems to be based on:

(1) They took the For Sale sign off of the MGM Grand Detroit (in my opinion it is for no other reason than a complete lack of interested buyers and is no indication of them having bettered their financial position).

(2) Extension of their program to exchange senior debt notes. IMO this is bad news - not enough note holders are taking them up on the initial offer. For some reason, the market rewarded them for this extension.

(3) News that gaming in Macau is quite healthy. No real stats available.

News indicates that the scheduled opening of a couple of towers at the City Center will open as scheduled by year end. It is widely expected that they will slash prices by 30-50% on condo's, including those that were presold at higher prices so that some might actually close.

I still expect massive losses to be reported for Q3 when they report next month. However, with the potential for condo sales now being immenent at City Center, Q4 revenues might get a bump up.

LVS and WYNN are both on a big rally as well.

 

[Cal]

What I have heard is that people are supporting this stock (and many others for that matter) in the hopes that they purchase now, and when the economy recovers, people will resume their discretionary spending. Vegas being more popular for boomers.

Not too sure about the financing that MGM has in place.

Many other stocks have been trading at high p/e, no proof yet for me to buy.