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Rating Action:

MOODY'S DOWNGRADES MGM MIRAGE'S SR IMPLIED RATING TO Ba2; CONFIRMS MANDALAY RESORT GROUP'S SR UNSECURED RATING AT Ba2; RATING OUTLOOK IS STABLE.

22 Feb 2005
MOODY'S DOWNGRADES MGM MIRAGE'S SR IMPLIED RATING TO Ba2; CONFIRMS MANDALAY RESORT GROUP'S SR UNSECURED RATING AT Ba2; RATING OUTLOOK IS STABLE.

Approximately $7.4 billion of debt affected.

New York, February 22, 2005 -- Moody's Investors Service downgraded MGM MIRAGE'S (MGMM) senior secured and guaranteed debt ratings to Ba2 from Ba1. The downgrade assumes that MGMM's acquisition of Mandalay Resort Group will close in the first quarter of 2005 and will be financed with all debt. Moody's expects that assets currently securing MGMM's senior debt will be released shortly pursuant to the terms of the company's various debt instruments. The senior unsecured ratings of Mandalay Resort Group (MRG) are confirmed at Ba2. The rating outlook is stable. This completes Moody's review of the companies' ratings which commenced on June 7, 2004.

The downgrade of MGMM's ratings is based upon high pro-forma leverage (debt to trailing EBITDA) of approximately 6.5x at closing, low interest coverage of about 2.8x (EBITDA/Interest), and the likelihood that leverage and coverage will remain near 5.5x and below 3.0x, respectively, through 2006, even after consideration of expected absolute debt repayment from asset sales ($500 million to $1.0 billion) and positive free cash flow. These credit metrics are outside the scope of the former Ba1 senior implied rating despite many of MGMM's positive credit attributes, the pending release of collateral, and the strategic benefits of its combination with MRG. A comfortable leverage range for a Ba1 large cap gaming company is between 4.75x to 5.0x. Higher business risk due to significant geographic concentration in Las Vegas, and the likelihood the company will pursue large scale ground up development projects - the timing of which are difficult to predict - also factored into this rating decision. The ratings could be upgraded if leverage is reduced to below 5.0x and is likely to remain so in the context of the company's capital spending program and financial policy priorities. The ratings could be downgraded if leverage rises above 6.0x.

MGMM has sufficient resources in place to the close the acquisition with its $5.5 billion committed bank revolving credit facility and cash on hand. The Federal Trade Commission, as well as the Mississippi gaming regulators have approved the transaction and approval from Nevada is expected shortly. However, Illinois' gaming commission currently lacks a quorum, and so MGMM is expected to puts its Illinois property in escrow until is can be licensed. In order to comply with state regulation in Michigan, MGMM must dispose of one of the Detroit properties which could delay the closing slightly. It is expected that MRG's convertible floating rate debentures will be refinanced at closing along with any of its approximate $1.5 billion of public debt that contain change of control puts at the holders option. These issues continue to trade above the 101 redemption price, and so puts are not considered likely.

All of MGMM's senior debt is currently secured by all company assets and is guaranteed by most domestic subsidiaries. Upon the early redemption of the company's $200 million 6.875% bonds on February 9, 2005, provisions of existing indentures allows for the release of all collateral at the company's option. Therefore, collateral securing MGMM's senior debt is expected to be released shortly. MRG will become a wholly owned subsidiary of MGMM and its existing public notes will remain at this subsidiary level. Moody's expects MRG's notes to benefit from downstream guarantees from MGMM, as well as the same subsidiaries that guaranty the company's existing public debt. The confirmation of MRG's senior unsecured debt is predicated on the assumption that MRG's notes and debentures will benefit from these upstream, downstream and cross guarantees such that no structural subordination will exist in the capital structure. Non-restricted subsidiaries that do not provide guarantees include foreign subsidiaries and joint venture entities. Moody's does not consolidate joint venture projects into its calculation of the company's credit measures given their non-recourse nature, the favorable operating performance of and prospects for these ventures. However, operating income of unconsolidated joint ventures is excluded from EBITDA and cash distributions, if any, are added back.

MGMM's ratings reflect its strong brand equity, leading margins, as well as the excellent quality and locations of its well maintained properties that have strong asset values. MGMM has a strong operational management team in place with a proven track record of integrating acquired companies and achieving targeted synergies. The acquisition of MRG further solidifies MGMM's position as the leading operator of resort casinos on the Las Vegas strip. The addition of MRG's is expected to drive revenue and margin growth with the addition of MRG's convention center asset due to Las Vegas' increasing popularity as a convention destination, as well as better management of MRG's casino assets whose margins trail those of MGMM. The company's largest properties are located in Nevada which is the most stable and gaming friendly jurisdictions that helps to offset the company's geographic concentration to some degree. The ratings reflect the company's high pro-forma leverage and higher business risk due to a high concentration of earnings in Las Vegas, and the likelihood the company will pursue large scale ground up development projects, the timing of which are difficult to predict, and so, this may pose a challenge to the company's efforts to reduce leverage before new development capital spending starts rising. In addition, more supply is being added in Las Vegas that could slow the pace of earnings growth. MGMM has a 10 million share repurchase authorization in place and actively repurchased shares in 2003 and 2004. However, the current ratings assume the company will not share repurchases for the near term. Potential earnings volatility caused by geo-political threats is an ongoing credit concern particularly given the company's reliance on the Las Vegas market. The rating outlook is stable reflecting the positive operating conditions in the company's primary markets.

MGM MIRAGE

Ratings downgraded:

Guaranteed, secured senior notes to Ba2 from Ba1.

Senior and senior subordinated shelf to (P)Ba2 and (P)Ba3 from (P)Ba1 and (P)Ba2, respectively.

Senior Implied to Ba2 from Ba1.

Issuer Rating to Ba3 from Ba2.

Ratings Confirmed:

Subordinated shelf at (P)B1.

Ratings downgraded and will be withdrawn:

6.875%, $200 million, Guaranteed, secured senior notes due 2008 to Ba2 from Ba1.

Ratings withdrawn:

Commercial paper at Not Prime.

Mirage Resorts Incorporated

Ratings downgraded

Guaranteed, secured senior notes to Ba2 from Ba1.

Mandalay Resort Group

Ratings Confirmed

Senior, unsecured notes and debentures at Ba2. These issues are expected to become guaranteed.

Convertible floating rate debentures due 2033 at Ba2. This issue is expected to be refinanced.

Senior subordinated notes at Ba3.

Ratings downgraded and will be withdrawn:

Senior Implied to Ba2 from Ba1.

Issuer Rating to Ba3 from Ba2.

Rating withdrawn:

Commercial paper at Not Prime.

Headquartered in Las Vegas, Nevada, MGM MIRAGE owns and operates 12 casino resorts located in Nevada, Mississippi, Michigan and Australia, and has investments in two other casino resorts in Nevada and New Jersey. Internationally, the company holds a 25% interest in casino developer Metro Casinos Limited of Great Britain. Consolidated revenue for the period ended Dec. 31, 2004 was about $4.4 billion.

Headquartered in Las Vegas, Nevada, Mandalay Resort Group owns and operates 11 properties in Nevada, a hotel/casino in Mississippi, and has a 50% interest in two other Nevada properties. In addition, the company owns a 50% interest in and operates a riverboat in Illinois, and owns a 53.5% interest in and operates a casino in Michigan. Consolidated revenue for the period ended October 31, 2004 was about $2.7 billion.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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