Published Monday, March 23, 2009 | 8:14 a.m.
Updated Tuesday, March 24, 2009 | 12:28 a.m.
- Moody’s downgrades MGM Mirage, again (3-19-2009)
- MGM Mirage gets debt waiver, swings to quarterly loss (3-17-2009)
- MGM Mirage's cash crunch (3-3-2009)
- The state of our engine (3-1-2000)
- MGM Mirage wants to tap $4.5 billion credit (2-27-2009)
- MGM, Dubai World said in talks with Deutsche Bank (2-23-2009)
CityCenter's joint venture partner Dubai World is suing MGM Mirage, claiming MGM Mirage breached terms of the joint venture agreement to develop the $8.7 billion project, forcing Dubai World to fork over more money than expected for CityCenter while MGM Mirage's financial future is in doubt.
In a press release, Dubai World today said that its subsidiary, Infinity World, filed a lawsuit in Delaware Chancery Court to seek a "declaratory judgment and other measures that would relieve Infinity World of its obligations under the joint venture resulting from MGM's breach."
Because of MGM Mirage's financial troubles "the current path of the project is simply unsustainable," Dubai World said. Dubai World also alleges that MGM Mirage mismanaged CityCenter, going over budget and requiring higher-than-anticipated contributions from Dubai World.
Dubai World, which has invested billions into CityCenter, owns half of the project and controls about 9.5 percent of MGM Mirage stock.
The lawsuit further clouds the future of CityCenter, which is scheduled to open in phases beginning in late 2009.
CityCenter managing partner MGM Mirage is one of several casino giants suffering from the dual pressures of a consumer downturn and credit crunch as it continues building its largest-ever resort. The company is struggling to raise more than $1 billion needed to finish the project at a time when banks are reluctant to lend to risky ventures.
Planned before the recession, CityCenter is soaking up needed cash at a time when MGM Mirage's earnings are plummeting.
In MGM Mirage's annual report, filed March 17 with the Securities and Exchange Commission, the company said it could give no assurance, in this economy, that it would be to meet its financial obligations, including funding CityCenter. The company also said there is "substantial doubt about our ability to continue as a going concern". Such disclosures typically precede a Chapter 11 bankruptcy filing, though MGM Mirage has indicated a desire to negotiate with banks outside of bankruptcy court and look for other ways of slashing debt.
MGM Mirage also said it had received a waiver from bank lenders on certain financial requirements until May 15, after which MGM Mirage could default on loan terms or renegotiate terms. A default could force the company into bankruptcy court by triggering immediate repayment of the company's debts.
Some analysts believe MGM Mirage will seek bankruptcy protection as a way of reducing debt to a more manageable level. Filing for Chapter 11 bankruptcy might put CityCenter, and the billions of dollars Dubai World has invested in the project so far, at risk.
Dubai World said it had "no other option" but to file a lawsuit to protect its investment after MGM Mirage's March 17 disclosure.
"Essentially it is being asked to pay significantly more and getting less, with only uncertainty about MGM's future," Dubai World said in the press release.
According to the lawsuit, the joint venture agreement between MGM Mirage and Infinity World states that written admission of MGM Mirage's "inability to pay its debts" constitutes an "event of default". MGM Mirage also defaulted based on a "material breach of a representation and warranty" outlined in the joint venture agreement, the lawsuit continues.
"What we are attempting to do is complete this project," George Dalton, group general counsel for Dubai World, said in an interview with the Associated Press.
"We're anxious to work with them, but we need to see them come out of their financial problems," Dalton said.
Dalton also questioned the validity of MGM Mirage's May 15 target date, telling the Associated Press there is "no certainty" the casino operator can continue to operate that long.
"Our concern is for the long term health of the project," Dalton said. "We want to see some certainty (from MGM) before we continue with our obligations."
MGM Mirage issued a statement early Tuesday calling the lawsuit "completely without merit.''
"Dubai World is well aware of our written commitment to meet our funding obligations and that MGM Mirage has available cash to satisfy those obligations. MGM Mirage is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week,'' said the statement from Alan Feldman, MGM Mirage senior vice president of public affairs.
"We look forward to working with Dubai World to resolve any outstanding issues and complete this landmark project,'' he said.
The company said on March 17 it lost $1.1 billion, or $4.15 a share, for the fourth quarter of 2008, compared to a profit of $872.2 million, or $2.85 a share, during the same period a year earlier. Revenue fell 15 percent to $1.8 billion over that period.