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It has come to our attention that MGM will only generate net proceeds of around $600 million versus our projection of $700 million. This is very disappointing and brings into question why the company would pursue this transaction. Near term liquidity will be improved but the sale doesn’t help the Q2/Q3 covenant issue. MGM will still have to undertake an expensive refinancing, possibly involving equity.

The problem, of course, is that TI has a very low cost basis, as is the case with many gaming assets. The gross purchase price of $775 million seemed fair but at $600 million, MGM is only receiving around 7.0x 2009 EBITDA. This multiple is less than our projected leverage ratio. The transaction is neither accretive to equity nor does it de-lever the company.

Assuming the rest of the portfolio is worth a premium to TI, say 8x, that doesn’t leave much equity left over.