Report: MGM, Dubai World reach deal on CityCenter

Steve Marcus

The CityCenter project on the Las Vegas Strip.

By Steve Green (contact)

Published Friday, April 17, 2009 | 7:59 a.m.

Updated Friday, April 17, 2009 | 2:08 p.m.

Shares of Las Vegas-based casino resort company MGM Mirage fell early today on a report that two big buyers of its debt have urged the company to correct its balance sheet problems by filing for bankruptcy protection. Shares rebounded this afternoon on reports that MGM Mirage and Dubai World are near an agreement on terms of a proposal to lenders that would secure funding for CityCenter.

Citing three people with knowledge of the talks, Bloomberg News reported that MGM Mirage and Dubai World are asking banks to amend terms of a $1.8 billion loan needed to complete CityCenter.

MGM stock traded as low as $4.81 in midday trading on a report in the Wall Street Journal that investor Carl Icahn and Oaktree Capital Management have acquired hundreds of millions of dollars in MGM Mirage bonds and are seeking an immediate restructuring. Shares ended up, at $6.30, or nearly 7 percent, on the CityCenter news.

Observers noted a bankruptcy could wipe out the value of the company shares, including those held by majority shareholder Kirk Kerkorian, so an immediate bankruptcy is likely something Kerkorian would want to avoid.

They noted that the bondholders' leverage is limited because MGM Mirage has not defaulted on its more than $13 billion in debt. As long as the company makes debt payments on time, there's not much the debt holders can do to force a bankruptcy.

Concerning the Icahn-Oaktree report, MGM Mirage says it continues to have productive talks with its lenders.

It's unclear if Icahn and Oaktree are trying to profit on their investments in MGM Mirage debt, or limit any losses on their investments, or are interested in acquiring one or more MGM Mirage properties as the company considers asset sales to improve its financial position.

The debt research company CreditSights said in a note to clients today that Icahn and the other MGM Mirage debt buyer may be seeking an immediate bankruptcy because bondholders now would recover more of their investment than if MGM Mirage were to restructure in the future.

CreditSights said one of MGM Mirage's biggest challenges is to refinance a $6.7 billion unsecured credit agreement that matures in late 2011.

"We view this 2011 maturity date as the 'outside date' in any balance sheet restructuring," CreditSights said. "The company could implement short-term fixes, such as asset sales or secured loans, but these short-term fixes come at the expense of long-term recoveries for unsecured security holders.''

"This is potentially why Icahn et al are encouraging the company to restructure now, since any effort by MGM to sell or encumber assets will weaken future recoveries," CreditSights said.

Separately, MGM Mirage today said that, as expected, it made a $70 million payment for construction costs for its CityCenter project on the Las Vegas Strip. The payment includes $35 million that should have been funded by Infinity World, a subsidiary of Dubai World, MGM Mirage said.

Sources have told the Las Vegas Sun that Dubai World, which is suing MGM Mirage over the project, isn't paying while it seeks assurances the project will be completed.

"MGM Mirage remains dedicated to supporting the completion of CityCenter, recognizing the significant long-term value this development will provide to Las Vegas and the state of Nevada," Jim Murren, chairman and chief executive of MGM Mirage, said in a statement. "MGM is determined to make CityCenter a success and we continue to review with our partners all options to keep CityCenter fully funded. 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."