Dec. 15 (Bloomberg) -- MGM Mirage, the casino company majority owned by Kirk Kerkorian, agreed to sell Treasure Island Hotel & Casino to real-estate investor Phil Ruffin for $775 million, sending the shares and bonds higher.

Ruffin Acquisition LLC will pay $500 million in cash and $275 million in secured notes for the property on the Las Vegas Strip, MGM Mirage said today in a statement. The casino company said it expects to report a “substantial” gain on the sale, which may be completed by the second quarter of 2009.

Selling Treasure Island will help provide MGM with financing for its $11.2 billion CityCenter project on the Las Vegas Strip, Ruffin, 73, said in a telephone interview. He said he’s prepared to “suffer for a couple of years” as the U.S. recession causes consumers to pull back on gambling.

“Long-term, it is a great property on the Strip, and it will recover along with Las Vegas,” said Ruffin, the former owner of the New Frontier & Casino. “We’re going into this property with no debt so we can withstand it for a few years.”

The transaction will increase liquidity and financial flexibility, Las Vegas-based MGM said in the statement.

Casino gambling revenue on the Strip, where MGM Mirage is the biggest owner, has fallen for 10 straight months through October as consumers curb travel amid the recession, according to data released by Nevada’s Gaming Control Board Dec. 10.

‘Top Priority’

“Liquidity concerns have had top priority in investors’ minds,” David Katz, an analyst at Oppenheimer & Co. in New York, wrote today in a note. He recommends investors hold MGM shares.

MGM Mirage rose 81 cents, or 7.6 percent, to $11.50 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 86 percent this year.

MGM’s $750 million of 7.5 percent notes due in 2016 rose 1.4 cents to 57 cents on the dollar at 9:40 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 18 percent.

MGM Mirage acquired Treasure Island as part of the 2000 combination between MGM Grand and Mirage Resorts. The hotel- casino is located on the Las Vegas Strip and features 2,885 guest rooms and suites. CityCenter, featuring a 61-story hotel, condominiums, retail space and dining, is scheduled to open in late 2009, according to MGM’s Web site.

New Frontier

Ruffin sold the New Frontier casino for $1.2 billion last year to Elad Group, the owner of New York’s Plaza Hotel.

The recession may last at least a year longer and maybe into 2011, providing the opportunity to buy Treasure Island, Ruffin said.

“Twenty acres on the Strip, property like this would not become available under normal circumstances,” Ruffin said from Las Vegas. “I knew they wanted to do private financing for CityCenter. This helps get them where they need to go. We had the money and I like the location.”

MGM Chief Executive Officer Jim Murren, who replaced J. Terrence Lanni Dec. 1, said in an interview last month that one of his biggest challenges will be securing the remaining financing for the CityCenter development.

To contact the reporters on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net.

Last Updated: December 15, 2008 16:24 EST