LOS ANGELES (Reuters) - MGM Mirage MGM.N and Dubai World said on Wednesday they have reached an agreement with lenders on a plan to fully fund their $8.5 billion CityCenter joint venture on the Las Vegas Strip.
The deal comes after government-owned Dubai World DBWLD.UL filed a lawsuit against MGM last month, alleging mismanagement of the multi-tower project in which it has so far invested $4.3 billion. The lawsuit has now been dismissed.
“Dubai World was concerned that the problems MGM was having at the corporate level would spill over into CityCenter,” said Susquehanna Financial analyst Robert LaFleur. “This clears the way for CityCenter to get completed and opened by the end of the year.”
MGM, like many other casino operators, has been grappling with a global recession that has sapped demand for travel and gambling at the same time that financing for current projects has all but disappeared.
“We really needed to resolve CityCenter before we could embark upon a global restructuring of MGM Mirage,” Chief Executive Jim Murren said in an interview.
He said actions to reduce the company’s $13.5 billion debt load, including options like assets sales, debt exchanges or raising fresh capital, would likely begin in late May.
MGM, controlled by billionaire Kirk Kerkorian, said a waiver of financial covenant requirements and leverage restrictions on its $7 billion senior credit line has been extended to June 30. The previous temporary waiver was set to expire on May 15.
“It gives them another six weeks, but they still haven’t resolved the indebtedness,” said Sanford Bernstein analyst Janet Brashear.
The senior lenders were repaid $100 million and MGM gave them security interests in the Gold Strike Tunica resort in Mississippi and undeveloped Las Vegas Strip land. MGM Grand Detroit has also granted lenders a security interest in its assets, the company said.
Murren said MGM still has a “substantial” amount of assets available to use as collateral against loans. Analysts have estimated that MGM could use assets as security against $2 billion to $3 billion of debt.
The CEO also said cash could be raised through joint ventures, management contracts, other partnerships or sale/leaseback deals.
Murren expressed admiration for Carl Icahn, an MGM debtholder who has suggested that debt be swapped for equity in the company, possibly as part of a bankruptcy filing, but the CEO declined to comment on whether talks had been held with the billionaire financier.
“MGM’s lenders don’t want to push it into bankruptcy, because they don’t have secured assets. They are on par with bondholders,” Brashear said.
Murren described MGM as “far from out of the woods,” but said the CityCenter scheme makes the possibility of bankruptcy “a little less likely.”
Under the new CityCenter plan, Dubai World and MGM will fund their remaining equity contributions through letters of credit. Dubai World will also pay back to MGM $135 million in construction payments the casino operator had made on its behalf.
CityCenter's lenders, led by Bank of America Corp BAC.N, will immediately fund a $1.8 billion senior secured credit facility, for which the interest rate was increased by 2 percentage points.
MGM said it would be responsible for completion costs if CityCenter’s net condominium proceeds were less than $243 million and for costs above the current budget of $8.5 billion.
The company said any additional construction costs would be secured by the assets of its Circus Circus Las Vegas resort and certain adjacent land.
The companies also said certain financial covenants were modified to provide CityCenter with greater flexibility during its first 18 months of operations.
Shares of MGM rose 6.6 percent to $6.18 on the New York Stock Exchange before trading was halted. The stock is down from a 52-week high of $53.67 reached last May.
Reporting by Deena Beasley; Editing by Andre Grenon, Phil Berlowitz
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