Maybe it is just us, but putting up your Casino to cover your near-default debt, well, that just seems… strange somehow. Sure, it’s a great (and nearly all-cash) business that could only please the lenders as security, but a posting Casino as collateral seems, somewhat off. Backwards. “In Bailout Nation, Casino asks you for marker.”
Maybe it is that getting in trouble with creditors in the gambling business just has a sinister tone to it. Or that it is hard to compute how one would manage to get in that sort of a fix in the first place, given the fact that the Casino is one of the original “cash cow” businesses. Whatever the case, MGM Mirage has managed to get in exactly that sort of fix.
MGM Mirage, seeking to modify lending terms on its unsecured debt and avoid default as gambling activity withers, is in talks with banks to pledge casinos as loan collateral, a person with knowledge of the discussions said.
Bloomberg points out an interesting twist that will surely get the enemies (and friends) of Credit Default Swaps in a tizzy, namely, that banks who have bought CDS on MGM Mirage’s debt might not be particularly incentivized to help MGM out of this pickle.
“That’s a mystery element here,” Cohen said. “To what degree are the bank lenders holding credit-default swaps so they don’t give a damn if MGM goes bankrupt.”
Of course, this is true of any over-collateralized lender, but we strongly suspect that this nuance will be a small voice of reason lost among the chaotic cries of “moral hazard!” (Nevermind that this is not a moral hazard problem, the term makes for good ink when you want to say “unfair” but your press secretary has saturated that phrase already).
Don’t despair. The Lion may yet roar:
“Talks with our financial partners are ongoing,” MGM Mirage said in an e-mailed response to questions. “We’re evaluating every possible option and, as we’ve said before, we will explore all serious and credible possibilities.”
MGM Mirage Said to Offer Casinos as Security to Avoid Default [Bloomberg]
Not even the mafia could screw up this bad.
Can the entity they got the CDS from pay up?
Short BYD.
THIS IS WHAT HAPPENS, LARRY! THIS IS WHAT HAPPENS WHEN YOU FUCK A STRANGER IN THE ASS!
Take a look at what’s happening to Six Flags. The co is heading for default and claims that one of its biggest bondholders won’t even agree to meet. The guys apparently have on a basis trade and would like nothing more that to experience a Credit Event and collect the NPV of the negative basis to maturity. This is only going to get worse after the Big Bang change to make CDS clearable. One aspect is that the Restructuring event will go away for all new trades. That means that CDS buyer will have to count on Failure-to-pay or Bankruptcy. Holders of basis trades will not merely have no incentive to talk restructuring, they may have to do everything in their power to prevent it.
But in the end, I wound up right back where I started. I could still pick winners, and I could still make money for all kinds of people back home. And why mess up a good thing?
@5
Neither a borrower, nor a lender be.
Casino? Caseenit. And I like it better the first time I saw it…whenitwascalledgoodfellas
@6
word.
@6 Well done
I normally try to avoid defaulting on gambling debt.