Fitch Rates MGM MIRAGE's New Senior Notes 'BB'.

NEW YORK -- Fitch Ratings has assigned a rating of 'BB' to MGM MIRAGE's (NYSE:MGG) $500 million 6.625% senior notes due 2015. Proceeds will be used to repay bank debt and for general corporate purposes. The rating Outlook is Stable.

Fitch downgraded the ratings of MGM on April 25, 2005 following the close of its acquisition of Mandalay Resort Group. The acquisition had resulted in a material increase in debt to $12.7 billion initially from $5.5 billion at March 31, 2005, with pro forma trailing leverage peaking at 5.7 times (x). Since that time, MGM has made better-than-expected progress reducing debt levels of the combined company. Strong operating cash flow and the consolidation of Mandalay into MGM's centralized cash management has allowed the company to repay $322 million in debt in just six weeks since closing. This debt reduction is incremental to the $525 million in sale proceeds from the Detroit MotorCity interest, which were applied to debt shortly before closing. Based on this new information, debt levels should be approximately $12.4 billion by second quarter end, implying pro forma leverage in the 5.5x range. This marks significant progress; however, Fitch continues to believe MGM's announced growth projects will keep leverage above 5.0x through at least 2006.

Liquidity is solid as cash from operations combined with revolver availability and cash-on-hand appear adequate to support the company's growth initiatives and meet debt maturities through at least 2006. MGG's newly unencumbered asset base could also improve financial flexibility, allowing the company to sell or mortgage assets to raise capital. Liquidity could be compromised if Mandalay noteholders choose to exercise their Change of Control option. Ratings may be reviewed in the event that any or all of the bonds are put. Currently $500 million of these notes are trading near the 101 redemption price.

Positive credit attributes include the company's strong brand equity, high quality assets, leading margins, and significant discretionary free cash flow. MGG's current management team has a strong track-record of integrating acquisitions and improving operations. The acquisition should solidify MGG's already leading position on the Las Vegas Strip and provide diversification away from the ultra high-end customer. MGG should also benefit the strategic and synergistic benefits of Mandalay's convention center and strong free cash flow generation. Overconcentration in Las Vegas is somewhat offset by the highly stable, casino-friendly regulatory environment of Las Vegas. Fitch is also encouraged by the earnings growth on the Las Vegas Strip and the optimistic outlook for 2005 of higher room rates and strong convention bookings.

Ratings concerns center on the company's significant concentration in Las Vegas (pre-and postmerger) and continued risk that cash flow will be directed towards investment opportunities or share repurchases rather than further capital structure strengthening. Currently, there are numerous growth projects in the pipeline (UK Gaming, Macau, and the Detroit permanent facility), which have not yet been factored into the capital spending budgets for 2005 and 2006. Additional share repurchases appear highly unlikely, but MGG has 20 million shares remaining under its current authorization. MGG was an aggressive purchaser of shares in 2003 and 2004. Ratings also consider formidable near-term competitive supply additions to the Las Vegas Strip, including Wynn Resort (April 2005) and Palazzo (March 2007), which could cannibalize MGG's high-end business and potentially slow the deleveraging process.

The Stable Outlook reflects the optimistic outlook for the Las Vegas market and Fitch's expectation of continued improvement in operating results driven by strong top-line growth and margin improvement. However, this view is tempered by MGM's heavy capital spending plans over the next several years, which will preclude material improvement in credit measures beyond levels consistent with the current category.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.