- The Washington Times - Thursday, March 19, 2009

NEW YORK (AP) - Moody’s Investors Service said Thursday it lowered the credit ratings of casino operator MGM Mirage since it received only a short-term waiver from its bank lenders on meeting the covenants of its loans.

Covenants are restrictions banks put on loans to make sure a company has the financial ability to repay the debt. For example, some companies must meet a certain earnings to debt ratio for the loan to remain in good standing. Moody’s said the company’s waiver only lasts through May 15. After that, the company will be required to meet the covenants.

Moody’s cut MGM’s corporate family rating to “Caa2” from “Caa1” and lowered its probability of default rating, which rates the company’s ability to refrain from defaulting on its loans, to “Caa3” from “Caa2.” The ratings are all speculative grade.

Moody’s also said its downgrade reflects a $300 million reduction in cash at the company. MGM had to use the money to repay a portion of its revolving credit facility.

“MGM cannot re-borrow this $300 million without lender consent, and hence the reduction in cash erodes MGM’s liquidity position,” Moody’s said. “This, combined with the short tenor of the waiver, places significant pressure on the company to relatively quickly come up with a plan to obtain additional bank concessions, raise additional liquidity, or pursue a major restructuring of its capital structure.”

The outlook on the ratings is negative.

MGM shares rose 30 cents, or 10 percent, to $3.17 in afternoon trading.

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