MGM Mirage-Pansy Ho venture could default on US$818m in loans

PUBLISHED : Thursday, 19 March, 2009, 12:00am
UPDATED : Thursday, 19 March, 2009, 12:00am

MGM Mirage and Pansy Ho Chiu-king are at risk of defaulting on US$818 million in outstanding loans attached to the MGM Grand Macau casino hotel, the United States company revealed in a stock exchange filing yesterday.

The 50-50 partnership between the Las Vegas casino developer and the daughter of Stanley Ho Hung-sun appears to have breached the leverage requirements under its original loan agreements in the three months to December.

While borrower MGM Grand Paradise, the Macau-registered joint venture, was able to obtain a default waiver from its banks during the fourth quarter, yesterday's filing did not say whether a waiver for the first quarter of this year had been attained or was being negotiated.

Failure to obtain a waiver could lead to a default, raising bankruptcy as a potential risk.

MGM and Ms Ho's 20-plus group of creditors is headed by Bank of America Corp and Hongkong and Shanghai Banking Corp, the local unit of HSBC Holdings. The joint venture secured its funding in several rounds between 2005 and 2007 and has posted the land-use rights for the US$1.25 billion, 600-room MGM Grand Macau as collateral.

In a worst-case scenario where MGM, Ms Ho and their lenders fail to reach an agreement, banks could begin calling in the loans. If the joint venture is unable to repay, the banks could attempt to take possession of the MGM Grand Macau, initiate restructuring, or liquidate the assets.

A spokesman at MGM Mirage said the Macau Grand had received a 'waiver of its financial covenants' in the fourth quarter.

'MGM Grand Macau has a secured bank credit facility, which is a standalone facility without any guarantees by either of the partners. The partners have strong relationships with its lending group.'

HSBC Corp and Bank of America all declined to comment yesterday.

The situation for MGM and Ms Ho is further complicated by the US company's own financial difficulties. MGM yesterday reported a US$1.15 billion loss for the fourth quarter on a non-cash write-down, while its auditors questioned the company's ability to continue as a 'going concern'.

MGM said it would have defaulted on its US$7 billion Las Vegas loan package as of March 31 but had managed to secure a 45-day default waiver from lenders, giving it until May 15 to cut debt or raise new cash.

Selling the MGM Grand Macau might prove tricky given the regulatory implications, the property's debt burden and its lacklustre performance.

The 15-month-old casino hotel generated US$119 million in earnings before interest, tax, depreciation and amortisation last year, MGM said. But the property booked a net loss of about US$6 million for the year, based on an analysis of data from MGM's stock exchange filings.