Fitch: MGM, Mandalay on watch

Fitch Ratings said it has placed the long-term debt ratings of MGM Mirage and Mandalay Resort Group on rating watch negative.

Fitch rates MGM's senior secured debt at BB+, senior subordinated debt at BB-, Mandalay's senior unsecured debt at BB+ and senior subordinated debt at BB-.

The action follows the announcement Friday that MGM made an offer to purchase Mandalay for $68 per share, or about $4.9 billion in cash plus the assumption of $2.8 billion in debt. This represents a 9.6x multiple of estimated fiscal year-end January 2005 EBITDA of $800 million.

Fitch's review of the deal will include a review of the strategic benefits that may be achieved with respect to competitive positioning, potential synergies and cost savings.

Fitch said the final terms and financing for the transaction have yet to be announced. A purely debt financed transaction would result in leverage in the 7x range for the combined entity and would likely precipitate a downgrade of one or more notches of the most senior classes of debt.

On Thursday, Mandalay reported very strong first-quarter 2005 results, with EBITDA up 36.1% and RevPAR up 25% year over year driven by strength across the Las Vegas Strip.

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