A day after being accused by its joint venture partner of mismanaging the $9.1 billion CityCenter development, MGM Mirage said a lawsuit filed by Dubai World was "completely without merit" and the casino operator plans to complete the Strip development.
MGM Mirage attempted to quell nervous shareholders' fears after Dubai World, the investment arm of the Persian Gulf state, filed suit Sunday in Delaware Chancery Court asking for unspecified damages and seeking to be relieved of its obligations under the companies' August 2007 joint venture agreement.
MGM Mirage Senior Vice President of Public Affairs Alan Feldman today e-mailed a statement from the company before trading opened on the New York Stock Exchange and attempted to deflect Dubai World's claims that question the viability of CityCenter.
"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," Feldman said in the statement. "MGM Mirage is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week."
During MGM Mirage's fourth-quarter earnings conference call March 17, the company said it had $600 million in cash on hand. Three days later, the company collected another $600 million as the initial payment on the $775 million sale of Treasure Island to Phil Ruffin.
Other than Feldman's e-mailed statement, MGM Mirage maintained radio silence on the lawsuit.
Feldman said MGM Mirage wants to work "with Dubai World to resolve any outstanding issues and complete this landmark project."
Shares of MGM Mirage closed at $3.06, down 5 cents or 1.61 percent.
CityCenter includes six high-rise towers with a casino, boutique hotels, condominiums, entertainment and a retail mall. MGM Mirage has touted the project as the most expensive private commercial development in U.S. history.
Several sources said Dubai World and the emirate of Dubai have been caught up in the global financial crisis and the entity might not be able to make its portion of the payment due to CityCenter. Last week, Standard & Poor's Rating Services downgraded many of Dubai's companies and warned that the sheikdom's debt payments could triple by 2011.
A Wall Street Journal article said the outlook for Dubai's economy and business empire was cloudy after the federal government of the United Arab Emirates loaned Dubai $10 billion to cover debt liabilities.
According to the article, Dubai's sovereign debt was $10 billion while debt obligations for the government run companies totaled $70 billion.
MGM Mirage received a two-month waiver last week from its lenders to avoid violating its loan covenants. Still, many analysts believe MGM Mirage will have to file a bankruptcy reorganization to restructure $13.5 billion in debt.
The investment community is trying to ascertain what the Dubai World lawsuit means for the CityCenter project and MGM Mirage.
Deutsche Bank gaming analyst Andrew Zarnett said CityCenter could give the Strip too much hotel room capacity at a time when room rates and occupancy levels have declined.
"(The) lawsuit ... raises doubts over the completion of CityCenter," Zarnett told investors. "We view a CityCenter postponement as a net positive for the overall Strip demand and supply dynamics, which is currently lopsided towards oversupply."
Wachovia gaming analyst Dennis Farrell Jr., thought the lawsuit could force MGM Mirage into a Chapter 11 restructuring.
"Due to the size of MGM Mirage's capital structure, we believe an out-of-court restructuring would be challenging," Farrell said.
Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
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