CITYCENTER: MGM Mirage, Dubai World say they intend to complete project - Business

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Apr. 18, 2009
Copyright © Las Vegas Review-Journal

CITYCENTER: MGM Mirage, Dubai World say they intend to complete project

MGM Mirage granted second waiver from lenders

By HOWARD STUTZ
LAS VEGAS REVIEW-JOURNAL

Events surrounding financially troubled MGM Mirage are fast becoming the gaming industry's biggest soap opera.

On Friday, hours after the company made a $70 million equity payment to keep construction work continuing on the massive CityCenter development, word surfaced that MGM Mirage and its feuding joint venture partner, Dubai World, had reached an agreement to complete the $8.7 billion Strip project.

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Representatives of both MGM Mirage and Dubai World, however, backed away from saying a deal was complete. Both sides said talks are continuing toward a plan to fund the completion of CityCenter.

"We are having productive conversations with our partners and our lenders," MGM Mirage spokesman Gordon Absher said.

The CityCenter drama played out a day after it was reported that corporate raider Carl Icahn and private equity firm Oaktree Capital management were buying up millions of dollars in MGM Mirage bonds in an effort to force the casino operator into a bankruptcy filing to restructure the company.

MGM Mirage is facing a May 15 deadline to come up with a restructuring plan for its $13.5 billion in long-term corporate debt.

"MGM Mirage continues in a high-stakes poker game," KDP Investment Advisors gaming analyst Barbara Cappaert wrote in a research note Friday.

Shares of MGM Mirage, traded on the New York Stock Exchange, opened down almost 18 percent Friday on news of the Icahn maneuver. News of the CityCenter payment sent shares up about 11 percent.

MGM Mirage closed the day at $6.30, up 40 cents, or 6.78 percent. Nearly 55 million shares were traded, more than six times the average daily volume.

MGM Mirage's equity payment on CityCenter included covering the $35 million portion of the costs owed by Dubai World, the investment arm of the Persian Gulf emirate, which owns 50 percent of the project.

It was the second time CityCenter's lenders gave MGM Mirage a waiver to cover Dubai World's share. In March, MGM Mirage made a $200 million equity payment, including the $100 million Dubai World was supposed to fund.

Absher said another equity payment for CityCenter is due at the end of April.

In a statement, MGM Mirage Chairman and Chief Executive Officer Jim Murren said the company is committed to completing the $8.7 billion Strip development.

"MGM Mirage is determined to make CityCenter a success and we continue to review with our partners all options to keep CityCenter fully funded," Murren said. "We are continuing to engage in constructive discussions with our senior lenders and the CityCenter lending group and we appreciate the support of the involved parties."

A Dubai World spokesman said the company "welcomes the further confirmation of MGM's commitment to the CityCenter project signaled by its funding of the payment due today. Meanwhile, we continue to work closely with MGM and lenders to find a solution to ensure CityCenter is completed, which is to the benefit of everyone."

Icahn's emergence was another factor for investors to weigh. The Wall Street Journal reported that Icahn, who once owned the Stratosphere, is pushing for an MGM Mirage bankruptcy.

Icahn and Los Angeles-based Oaktree, which owns 42 percent of Cannery Casinos, have separately bought large amounts of MGM Mirage's corporate bonds, according to sources. One media report placed Icahn's purchase at $500 million. It's unclear how much of MGM Mirage's debt Oaktree has purchased.

A bankruptcy would likely wipe out the value of MGM Mirage's stock and leave bondholders, like Icahn, first in line to collect. Still, some analysts don't believe Icahn has the leverage to force MGM Mirage into bankruptcy.

"This is a typical Icahn move. It's all about making money and he sees opportunity," said Joe Fath, a gaming analyst for fund manager T. Rowe Price. "I don't think, however, that he has a lot of leverage. The banks have all the leverage. I don't think Icahn and Oaktree even have a seat at the table. The banks are the ones holding all the cards."

The drama, in a way, pits one billionaire, Icahn, against another, 91-year-old billionaire Kirk Kerkorian, MGM Mirage's majority stockholder. He controls about 53 percent of the company.

Cappaert said Icahn may be trying to force Kerkorian, who has been relatively silent on the company's financial doings lately, into making a move.

"Icahn and Oaktree do not have a lot of choices as yet. MGM has not defaulted on its notes," Cappaert told investors. "However, a move into bankruptcy supported by a bondholder group may not be bad for bondholders in general. We suspect the group is looking for equity ownership, which would wipe out current equity holders if bondholders prevail."

The plan to fund the rest of CityCenter asks lenders to amend the terms of a $1.8 billion loan needed to complete the project, Bloomberg News reported.

MGM Mirage, the biggest casino owner on the Strip, and Dubai World have submitted a proposal to lenders that would secure funding for CityCenter, two people with knowledge of the talks said.

The amendments would fence off CityCenter and protect the project from the possibility of a default by MGM Mirage, three people, who declined to be named, said. The proposal would ensure all the funds needed to complete the project are committed by the partners and its banks, one of the people said.

Under the existing loan agreement, a default by MGM Mirage on the senior credit facility would trigger a default on the CityCenter loan, endangering construction on the unfinished multibillion-dollar development.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. CRAZY_JIMMY wrote on April 18, 2009 03:54 PM: AS AN EMPLOYEE OF MGM-MIRAGE, ALL THESE CRYING IDIOT'S WISHING THEY WOULD SELL THE PROPERTIES. START TO THINK WHAT YOU ARE WISHING FOR... WHAT MAKES YOU THINK THAT THE NEW OWNERS, WILL KEEP YOU AT THE SAME RATE OF PAY OR BENEFITS? WILL THEY STILL ALLOW THE UNION TO BE IN THE CASINO/HOTEL? (EXAMPLE: STATIONS CASINOS) YOU MAY HAVE TO RE-APPLY AND THEN YOU HAVE TO FIGHT THE OTHER PEOPLE OUT OF WORK RIGHT NOW FOR THE JOB.(THEY MAY OFFER PEOPLE THE JOB IF THEY DON'T JOIN THE UNION.)... SO KEEP CRYING, AND MAYBE THEY WILL WEED YOU CRYBABIES OUT AND GIVE THE JOBS TO PEOPLE WHO APPRECIATE HAVING A JOB. OH AND BY THE WAY, I AM NOT MANAGEMENT OR CORPORATE STAFF. I AM JUST A WORKING STIFF LIKE YOU, WHO VALUES HAVING A JOB AND NOT LAID-OFF TRYING TO FEED MY KIDS AND A ROOF OVER THEIR HEADS.. David wrote on April 18, 2009 12:29 PM: Samuel Clemens. Your comments prove you ain't no Mark Twain when it comes to business accumen. Most MGM properties are making money (the Goldstrike in Jean may not). They just aren't making enough to cover CC's massive debt. Tantamount to you working at McDonalds for minimum wage, but carrying a $250,000 mortgage. MGM is selling properties, not because they aren't profitable, but rather, because they need the money to pay down debt. Once again, tantamount to you selling your basball card collection because you need the money to pay ths months mortgage payment. To MGM MIRAGE EMPLOYEE wrote on April 18, 2009 12:29 PM: I hear ya! I'm hoping we get sold as well (perhaps we work at the same property). It's hard to trust a company whose greed has clouded their judgment. The company would have been better off if Kerkorian actually did buy CityCenter like he proposed to do at one point. Samuel Clemens wrote on April 18, 2009 11:09 AM: MGM will be fine in the short term. They have many properties that they can sell off. These potential sales help them in two ways. First, the cash from the sales will go directly into MGM coffers increasing thier liquid assets. Second, MGM would only consider selling properties that are currently operating at significant deficits. MGM will not lose any sleep if they need to get rid of Circus Circus, Excalibur, Monte Carlo, Mirage or the NY NY. The Bellagio is still the most productive property on the strip. As long as MGM retains that one, they will be fine. The MGM Grand and the Mandalay Bay are also worth keeping at this point. Of course MGM will not get the most desireable bids for the sale of those properties. MGM would benifit most from the removal of the negative operating expenses associated with those properties. MGM would be able to sell off its undesireable assets because people are always looking to get into the LV scene. I agree that the decision to build the City Center was highly questionable in the first place. The poor management, cost overruns, and poor workmanship, and slashing MGM employee benefits are not helping MGM in the least bit. MGM needs to streamline its operations by removing the dead weight and moving ahead with the City Center Project. Once things turn around MGM will be free to attempt to buy or build any properties they want. Chris wrote on April 18, 2009 10:41 AM: Wynn won't buy an existing property. He will buy raw land and develop whatever new concept is dancing in his head. City Center will open and operate at a loss for sometime. Las Vegas hastoo much supply for them to command revenues high enough to support thir debt-laden operating expenses. MGM MIRAGE EMPLOYEE wrote on April 18, 2009 09:44 AM: my coworkers and I are so disgusted with this company we our wishing we get sold soon. Yes we could do worse, but most are willing to take the risk. The general feeling where I work is keep cc sell everything else please. City Cemetery wrote on April 18, 2009 09:25 AM: Why would anyone buy into the City Cemetery? I would think the place is dangerous, considering the sloppy workmanship and lack of oversight. Scrapping money together to pay off debt is not a good sign. Mount Debt wrote on April 18, 2009 09:21 AM: I have doubts that City Center will ever make it to completion. They have debt higher than Mount Everest and need another pile of money to finish the project. It looks like the big money boys are going for the throat. There is not a lot KK can do other than pump money into CC. At 91 you could safely say KK is near the end of his journey on earth. John wrote on April 18, 2009 07:50 AM: Schmoe, don't be surprised if Wynn does start buying his properties back. With MGM hemmoraging cash on the city center project and dubai trying to weasel out of their half, they're going to be in a cash-poor position very soon if not already. Watch his interview with John Ralston, he already indicated interest by saying "if the price is right" and Wynn inc is shoring up their cash base with all the recent stock offerings. Schmoe wrote on April 18, 2009 06:10 AM: He's 91.. what do you want him to do? Carl did a good job with the Stratosphere, maybe he can fix up MGM. MGM was fine until they got into fantasy with City Cemetary. There was no need for it and they'll end up out of the game because of it. Wynn is laughing. If the economy wasn't so soft, he'd likely be preparing to buy his stuff back from KK... Read All Comments