Published Friday, April 10, 2009 | 8:38 a.m.
Updated Friday, April 10, 2009 | 6:43 p.m.
- MGM Mirage stock surges on corporate financing news (4-6-09)
- MGM Mirage hires investment firm (4-4-09)
- Australian businessman weighing CityCenter investment (4-3-09)
- CityCenter contingency plan emerges; investor shows interest (3-28-09)
- CityCenter safe — for now (3-28-09)
- In a recession, a delay could be seen by rivals as a positive development (3-28-09)
- Shutdown would leave few other options for many in construction (3-28-09)
- A financial history of the CityCenter project (3-28-09)
- Letter sent to MGM Mirage employees from CEO James Murren (3-27-2009)
Dubai World, which owns half of the financially troubled CityCenter project on the Strip, is pressing CityCenter partner MGM Mirage and CityCenter's bank lenders for a commitment that would allow the project to be completed without fear that the project would be thrown into bankruptcy, according to a source familiar with the plan.
A Chapter 11 filing by CityCenter, a joint venture between MGM Mirage and Dubai World, would put the project, and Dubai World's $4.3 billion investment in the resort, at risk.
When banks agreed to lend $1.8 billion for CityCenter in October, they required MGM Mirage and Dubai World to pay about $1 billion, in monthly installments, in return. Those payments began in March and will continue through June. The partners must exhaust those payments before they can tap the $1.8 billion bank loan.
Last month, MGM Mirage made a $200 million payment, which included the company's $100 million payment and an equal payment on behalf of Dubai World, which refused to contribute its portion. About $800 million is left to be paid, and Dubai World, which has sued MGM Mirage over the CityCenter project, appears unlikely to make future payments under the existing schedule. About $800 million remains to be paid before CityCenter can access the $1.8 billion loan.
Dubai World's lawsuit claims the casino giant mismanaged CityCenter, leading to cost overruns and more payments from Dubai World than expected.
Dubai World and MGM Mirage agreed to the payment schedule as a condition of receiving the bank money, which was $1.2 billion short of the $3 billion MGM Mirage sought to complete CityCenter.
MGM Mirage's finances have deteriorated since then. Last month the company's banks agreed to waive certain financial requirements attached to a $7 billion corporate loan until May 15. Had MGM Mirage not received the waiver, the company might have defaulted on the loan, potentially triggering a Chapter 11 bankruptcy filing.
An immediate bankruptcy filing by MGM Mirage appears unlikely, experts say, as banks – which don't have security in any of the company's casinos – are motivated to prolong negotiations with MGM Mirage. Lenders could potentially receive collateral in exchange for giving the company more time to reduce its debts outside of bankruptcy and by allowing the company to operate with more debt than is typical.
Dubai World, which has funded about 75 percent of CityCenter so far, is concerned that MGM Mirage will be unable to meet its financial commitments toward the project.
“We cannot comment on specifics of our discussions but we continue to be fully committed to completing CityCenter and we continue to work with our partners and the lenders to seek a solution,” George Dalton, Dubai World’s general counsel, said in a statement today when asked about the commitments the company is seeking.
“We have already contributed $4.3 billion, and we are standing ready to commit more money to see the project finished once we are sure our partners and the lenders will also commit, and there’s certainty about the future viability of MGM Mirage,” Dalton said. “This is in the interests of everyone.”
MGM Mirage spokesman Alan Feldman said the company has the money necessary to fund its portion of CityCenter.
"We are ready, willing and able to put our funds into the completion of CityCenter," he said.
Feldman said the company is working closely with its lenders and Dubai World to find a solution that will complete CityCenter and that Dubai World's refusal to make its March payment has not thwarted that process.
While analysts say bankruptcy may not be imminent, they question whether MGM Mirage can raise the money needed to reduce its bank debt, pay billions more in bond debt coming due over the next couple of years and find money for CityCenter. The company has put its MGM Grand Detroit and Beau Rivage resort in Biloxi up for sale, and has expressed interest in selling other properties to raise cash.
Some of the same banks that loaned MGM Mirage $7 billion in 2004 are part of the $1.8 billion loan for CityCenter. These banks – which are now calling the shots because of MGM Mirage's precarious financial position – might be less committed to CityCenter because they have less money at stake in that project than in MGM Mirage, analysts say. If they force CityCenter into bankruptcy, the banks might be able to claim that money if it has not yet been spent, they say.
The May 15 deadline buys MGM Mirage more time to figure out a solution to its cash crunch but doesn't solve the problem, analysts say.
Earlier Friday, Bloomberg reported that MGM Mirage's talks to obtain a $750 million secured loan from Los Angeles private equity company Colony Capital LLC have been put on hold as MGM Mirage focuses on negotiations with banks. The news service attributed the report to people with knowledge of the discussions.
JPMorgan analyst Joseph Greff, in the meantime, said MGM Mirage continues to have support of its lenders as it seeks to bolster its finances and find additional funding for its $8.7 billion CityCenter development on the Las Vegas Strip.
Reaffirming his neutral ranking on MGM Mirage stock, Greff said a meeting with MGM Mirage Chairman and Chief Executive Jim Murren this week affirmed the resort operator is exploring various options to deal with its financial pressures, which include $13 billion in debt. Those options include asset sales, debt for asset swaps and bond-for-bond exchanges.
In a note to clients, Greff said "the banks seem to be working closely with MGM to ensure the company makes it through this restructuring."
"MGM indicated that it and the banks want to see CityCenter completed and that there are third parties out there who could help complete as well," Greff said in the note.
The stock market was closed today for Good Friday. MGM Mirage stock closed Thursday at $5.30, up 11.6 percent or 55 cents. In the past year it has traded in the range of $55.06 to $1.81.
Sun reporter Steve Green contributed to this report.