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Best of Howard Stutz

Gaming Guru

Howard Stutz

CityCenter project intended to be completed

20 April 2009

LAS VEGAS, Nevada -- 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.

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.

CityCenter project intended to be completed is republished from