CityCenter Finally Reaches Funding Agreement with Investors

by Howard Stutz
Las Vegas Gaming Wire

LAS VEGAS, Nevada -- MGM Mirage and Dubai World ended a 5-week-old public feud Wednesday by agreeing to a comprehensive plan to fully fund and complete the $8.5
  billion CityCenter development.

The agreement between the 50-50 joint venture partners ends speculation that CityCenter, one of the largest-ever privately funded construction projects in the United States, would end up in bankruptcy. Such a move would have halted work on the project and shelved the jobs of some 8,500 construction workers.

CityCenter, which covers a 76-acre Strip parcel between Bellagio and Monte Carlo and includes hotels, a casino, high-rise residential, retail, restaurants and entertainment, is expected to provide between 10,000 and 12,000 permanent jobs.

The project is scheduled to open in phases starting in October with Vdara, a non-gaming hotel and condominium complex. Aria, the 4,000-room hotel-casino centerpiece of the project, will open in mid-December.

"I don't think I can overstate the significance of this event," MGM Mirage Chairman and Chief Executive Officer Jim Murren told the Review-Journal on Wednesday. "Of all the different alternatives that presented themselves over the past few weeks, this was the best possible and most favorable solution we could have hoped to achieve."

Under a revised joint venture agreement, Dubai World, the investment arm of the Persian Gulf emirate, and MGM Mirage will fund the remaining equity contributions to CityCenter through letters of credit.

Also, CityCenter's lenders immediately will fund the project's $1.8 billion senior secured credit facility.

Dubai World has agreed to dismiss a lawsuit it filed against MGM Mirage on March 22 in Delaware Chancery Court, alleging the casino operator mismanaged the project, leading to cost overruns.

"This agreement provides a stable financial framework for one of the most exciting destination resort development projects ever to be constructed," Chris O'Donnell, Dubai World's director of the CityCenter joint venture, said in a statement. "We believe CityCenter has a bright future and will benefit both the partners and the local economy, and we look forward to working with MGM management to realize that potential."

Murren said the past few weeks have been stressful, but the main issues were to get both partners' objectives on the table and strike an agreement with 100 percent of CityCenter's lenders, which include eight different banks in various time zones and countries.

Soon after announcing the agreement with Dubai World, MGM Mirage said its corporate lenders agreed to a second waiver of the company's financial covenants, allowing the issuance of an irrevocable $224 million letter of credit that will be used to fund the completion of CityCenter.

The company now has until June 30 to come up with a plan to refinance $13.5 billion of long-term debt. MGM Mirage had faced a May 15 deadline to restructure its finances or risk defaults that could have triggered a corporate-wide bankruptcy.

"Our company's ability to obtain this amendment and waiver demonstrates the strong support of our lenders and their belief in the importance of completing CityCenter," Murren said. "We continue to work with our advisers and lenders to reach a long-term restructuring of MGM Mirage's indebtedness, and those discussions remain positive and constructive."

Bill Lerner, founder of research and advisory firm Union Gaming Group, called the 45-day waiver a "giant step" for MGM Mirage in avoiding bankruptcy.

"I certainly feel better about their ability to survive today than I have in recent weeks," the casino industry analyst said.

To get the extension, MGM Mirage paid back $100 million under its revolving credit facility and newly secured $300 million of its debt with its Gold Strike casino in Tunica, Miss., and undeveloped land on the Strip.

The company also put up its MGM Grand Detroit casino as collateral for the rest of its credit facility, now about $6.6 billion.

Murren said MGM Mirage needed to complete the funding of CityCenter before turning toward the company's corporate debt issues. He said MGM Mirage executives and advisers have poured over the assets to help create a business model as the company develops a restructuring plan.

"Clearly, today, we took a large step forward toward resolving our corporate issues," Murren said.

The course taken by MGM Mirage's board of directors, he said, could include selling some of the company's hotel-casinos in Las Vegas and in other jurisdictions. MGM Mirage has asked Wall Street investment house Morgan Stanley to evaluate sales offers for the MGM Grand Detroit and the Beau Rivage in Biloxi, Miss.

"I have a lot of ideas, and the solution may not involve an asset by asset sale. But it will be part of the dialogue," Murren said.

Under terms of the new CityCenter joint venture agreement, MGM Mirage will be responsible for completion costs if net proceeds from the sale of condominium units are less than $243 million and for any expenses in excess of the budgeted $8.5 billion.

Dubai World has agreed to fully fund its original commitments, including $135 million in payments that MGM Mirage recently paid on its behalf.

Until the project is completed, MGM Mirage's obligations will be secured by the assets of Circus Circus in Las Vegas and adjacent land through a completion guarantee.

The CityCenter credit facility now will mature on June 30, 2012, the company said. Other financial covenants were modified to provide the development "with greater flexibility during its first 18 months of operations."

News of the agreement with Dubai World caused the New York Stock Exchange to halt trading in shares of MGM Mirage about 45 minutes before the market closed. MGM Mirage spokesman Gordon Absher said the company alerted the exchange that a release of significant material nature was coming. The exchange also decided to suspend after-hours trading of MGM Mirage shares.

Shares of MGM Mirage closed at $6.18, up 38 cents, or 6.55 percent.

"We believe MGM Mirage's shares will respond favorably (when trading resumes today)," JP Morgan gaming analyst Joe Greff told investors late Wednesday. "That said, MGM Mirage is not out of the woods by any stretch of the imagination, but we are encouraged by these events nevertheless."

The full funding of CityCenter was met as welcome news by construction officials. Steve Redlinger, a spokesman for the Southern Nevada Building and Construction Trades, said the agreement gives workers piece of mind.

"This removes a large cloud hanging over the project," Redlinger said. "Workers can go home tonight and know they can come back to work tomorrow and the next day and the next day until the project is completed."

The dispute between MGM Mirage and Dubai World had fueled reports about several potential investors stepping in to bail out the development.

Two weeks ago, MGM Mirage made a $70 million equity payment on CityCenter that included covering the $35 million portion of the costs owed by Dubai World.

That 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.

Gaming regulators must approve all pieces of the agreements, the company said.