Seems that debt stricken companies (unfortunately in some cases even sovereigns) subdued in strength to generate cash and support creditor payments are having a tough time. One interesting example is MGM which paired in a glut expansion that is hard to sustain. Pairing up with Dubai World in Las Vegas City Center does not sound like a winning strategy. It will be hard to maintain their poker face with 15B in LTD on their balance sheet and with a credit line maxed up by bankers; the only thing they can to is to keep keep rolling the dices–unfortunately, the odds seem to be against the house this time–
Shorted 1500 shares this week.
Agreed that the link with Dubai is not attractive although management seems to have no qualms about it since they just struck another deal together, however do you know how much of the debt is coming current over the next 6 months (since this seems to be a bet on them having problems rolling over LTD)?
Also just glancing at their balance sheet, they were able to flip over 14.356 billion in maturing debt when the markets were in a lot more turmoil than they are now. That seems to remove a lot of the concern that they won’t be able to do so moving forward.. although I’m not predicting great things for casinos something drastic has to happen for an operator as big as MGM to go down.
They have a credit facility on which they mostly relied to flip things over. The credit facility will expire in 2011 however. I am not saying that MGM will go down, it’s just that equity is overpriced as last claim on revenues.
That’s fair, what kind of valuation metric are we looking at though? Since it doesn’t seem they’ll have difficulty servicing debt at least for a few years, what’s a fair value for the equity holders?