Summary
The histories of the major players in the current MGM financial crisis reveal their goals: Icahn is again acting like a raider; Oaktree is doing percentage calculations on long-term debt; Bank of America (BAC) wants to survive and make at least some profit; and Dubai World is in way over its head. Kerkorian is the experienced poker player, able to bluff out novices like Dubai World and BAC, and maybe even Icahn. But his cards have to improve quickly, mainly by selling assets, or he will have to declare bankruptcy.
Analysis
Sometimes it does help to simplify complex financial arrangements by telling the stories of the parties. The multi-billion-dollar poker game that is now MGM started when Kirk Kerkorian, who gambled extensively as a player in Las Vegas during the 1940s, took over the company and changed it from films to casinos. During the recent bubble, he was able to leverage MGM into the second largest casino company in the world, even attracting billions from a subsidiary of then-oil-rich Dubai World.
A strange partnership: what was the government of a Muslim Arab country doing as the co-owner of casinos? Apparently trying to make even more money. It sued MGM and refuses to pay its share of CityCenter, but it was just approved as MGM's partner in Atlantic City.
Kerkorian was easily able to bluff out Dubai by threatening to declare bankruptcy, scaring BAC into agreeing to at least temporarily modify the loan agreements.
Dubai now sees that it might lose everything. BAC will agree to anything, such as waiving debt-equity ratios, so long it continues to get its payments on time. Oaktree has long-term bonds, so it wins if there is a bankruptcy or a recovery.
But Icahn, resuming his role as raider, has both short-term and long-term bonds. He wants to force a reorganization and grab MGM's equity. Kerkorian can only keep him at bay if he can continue to come up with the cash to make those periodic payments. This means selling assets.
Even a great poker player cannot bluff forever. Sometimes, you have to have better cards to outlast your opponents.
