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Best of Howard Stutz

Gaming Guru

Howard Stutz

Saving CityCenter was no easy task

23 June 2009

LAS VEGAS, Nevada –- The $8.5 billion CityCenter, billed as the most expensive private commercial development in U.S. history, was a few hours from shutting operations on the morning of March 27.

Earlier that week, MGM Mirage was sued in Delaware by Dubai World, its 50-50 joint venture partner in the 76-acre Strip project.

MGM Mirage needed to make a $200 million equity payment -- half of which would be on behalf of Dubai World -- or else CityCenter was headed into bankruptcy. Building activity would be halted and some 8,500 construction workers would lose their jobs.

Inside MGM Mirage's corporate headquarters at the Bellagio, Chief Financial Officer Dan D'Arrigo sat at a conference table with company Chairman and Chief Executive Officer Jim Murren. They were waiting for word that a majority of the company's banks were willing to let MGM Mirage make the payment.

Suddenly, the floor-to-ceiling windows aligning the spacious office that once belonged to Bellagio builder Steve Wynn began to shake.

News helicopters from Las Vegas' television stations were hovering overhead, waiting to capture the exodus of construction workers when the CityCenter site was shuttered.

"It was pretty surreal," D'Arrigo recalled.

Moments later, Bill Repko from Evercore, a financial consulting firm retained by MGM Mirage, walked into the room and showed Murren and D'Arrigo the confirmation message on his Blackberry. The last bank had agreed to the payment and majority consensus was reached.

CityCenter would live another day.

"It kind of lightened the mood a bit," D'Arrigo said. "It could have been pretty ugly."

MGM Mirage, which operates nine Strip casinos, engaged in months of complex financial negotiations to secure the final $1.8 billion in financing needed to complete CityCenter.

The surprise lawsuit by Dubai World, the investment arm for the Persian Gulf emirate, sent the talks into overdrive. The company's joint venture agreement needed to be restructured or else the complex would be bankrupt.

At the same time, an array of financial problems arose concerning MGM Mirage's more than $14 billion in long-term debt. Auditors said the Strip casino giant was in non-compliance with its bond covenants, which could trigger a corporatewide bankruptcy filing.

Both matters were resolved by the middle of May.

A comprehensive plan to fully fund and complete CityCenter was agreed upon by MGM Mirage and Dubai World on April 29, ending the 5-week-old public feud. The project will open by December.

Two weeks later, MGM Mirage unveiled a four-pronged corporate restructuring plan that raised $2.6 billion and gave the company time to resolve its debt and leveraging problems without a bankruptcy filing.

D'Arrigo said that in normal times, a corporate financing plan of that magnitude would take months to negotiate and complete. MGM Mirage and its banks stuck the deal in a matter of weeks.

"It was truly remarkable what was accomplished," D'Arrigo said.

Getting there, however, was not simple.

The work involved dozens of MGM Mirage corporate employees, who were assisted by hundreds of outside advisers from nearly two dozen outside firms weighing in from both U.S. coasts and around the world.

When all is said and done, MGM Mirage will have paid millions of dollars in fees to consultants.

Some of the advisers were given makeshift offices in Bellagio suites that were commandeered by the company and stripped of their luxury items. Secondary corporate offices at Mandalay Bay were utilized, as were offices in the temporary CityCenter headquarters behind New York-New York.

The banking partners were also global, with headquarters in such places as Scotland, Japan, Germany and Canada, as well as New York.

Meetings oftentimes took place at odd hours.

Dubai World is headquartered in the United Arab Emirates. Midmorning in Las Vegas is the middle of the evening in the Middle East. Many of Dubai World's key advisers are in Singapore, an island nation located in Southeast Asia whose time zone is 15 hours ahead of Las Vegas.

Hundreds of seemingly nonstop telephone conference calls were held at all hours of the day and night.

Weekdays and weekends sort of blended together. Family events were put on hold. Vacations were canceled. Overnight trips to New York for meetings were not uncommon.

The legal documents encompassed thousands of paper reams. At one of the company's many board of directors meetings held during the process, MGM Mirage general counsel Gary Jacobs said he provided 12 different sets of minutes from previous meetings for the board to review.

"Brazil used to have forests," Jacobs said.

D'Arrigo spent Easter Sunday outside a restaurant in his car on a telephone conference call while his family ate dinner inside.

"I don't even want to talk about my 15th anniversary," he said.

At one point, D'Arrigo said he would only get on a conference call if he was provided with an agenda. Once, he began a conference call about a portion of the CityCenter financing at his office at Bellagio. He exited the call to go home, but then got right back on the conversation in his home office. He actually caught himself nodding off during the call.

Oftentimes, he ended a four- or five-hour call, only to immediately take another call.

"One time, I got on a call and something like 80 people beeped in," D'Arrigo said. "We had to do all we could to keep people organized and focused on the different pieces of the puzzle. If they didn't sync up, then it wouldn't make sense. You couldn't do C if you hadn't completed parts A and B first."

The work was highly stressful.

Jacobs, D'Arrigo and their teams laid out several possible paths the company could follow out of the abyss.

"There were a multitude of different roads this could have gone down," said D'Arrigo, who has spent 13 years with MGM Mirage including the last two as CFO. "We laid out the paths and ranked them."

MGM Mirage's in-house legal group was beefed up by outside specialized law firms and advisers. The financial team included accountants, auditors, tax and financial experts and was fortified by outside help, including firms specializing in corporate financial restructuring matters and investment banking.

But with credit markets having collapsed, the stock market in a shambles and the lending industry all but dried up, the road was never clear and the direction constantly changed.

"It was kind of like going down a river, but you would hit one set of rapids, and then you hit another set of rapids, and another, and then another one. It was nonstop," Jacobs said.

The key to the entire process was resolving the CityCenter issue.

"If CityCenter went bankrupt, it would not have only been a horrible situation for Las Vegas, but it would have complicated the corporate issues," Jacobs said. "It was needed to be initially addressed."

MGM Mirage and Dubai World had seemingly progressed toward triggering the mechanisms needed to secure $1.8 billion that banks had agreed upon to fund the development.

During the company's fourth-quarter earnings conference call, Murren told analysts the relationship with Dubai World was "outstanding."

But problems surfaced on March 22 when Dubai World sued MGM Mirage in Delaware Chancery Court, claiming its joint venture partner had mismanaged the project and caused cost-overruns.

The lawsuit came out of the blue and pressed the timeline. Dubai World wasn't going to kick in its share of the costs. Equity payments were due on CityCenter and it was clear MGM Mirage would not only have to fund its portion, but Dubai World's as well.

"It's not every day that you wake up on a Monday morning and your partner sues you in court," D'Arrigo said. "But we did not feel it was in anyone's best interest to get angry in public. We needed to get to the bottom of the matter and find a solution."

Jacobs, who joined MGM Mirage in 2000 after nearly 30 years as a partner with a pair of high-profile Los Angeles-based law firms, said he could revert into lawyer mode and "instinctively" respond to the lawsuit or the company could ignore the filing and attempt to negotiate a resolution.

The other complication was media leaks. During the negotiations, reports surfaced about several different potential investors looking to either acquire one of MGM Mirage's casinos, invest in CityCenter or acquire the company's long-term debt.

Jacob said MGM Mirage was not a source of the stories.

"The leaks were frustrating because it was like a sieve," Jacobs said. "Everybody was trying to manipulate something for whatever purpose or their own purpose. That complicated matters."

At one point Jacobs had to rein in attorneys from the eight law firms advising MGM Mirage in both the CityCenter and corporate restructuring process who were racking up billable hours.

"Part of my function was to put law firms on diets," Jacob said. "There were many decisions to be made and you couldn't do it by committee."

Before the resolution with Dubai World was reached, MGM Mirage needed clearance from its banking partners to make equity payments. Some of the banks are only tied to the corporate side and are not part of the CityCenter funding group. An educational process was needed.

"A lot of the big banks brought senior people here so they could understand what CityCenter was and is," D'Arrigo said. "Most of the people around the world thought there was nothing but tumbleweeds up and down the Strip. We needed them to understand there was still a vibrant community here."