Published Wednesday, April 29, 2009 | 12:44 p.m.
Updated Wednesday, April 29, 2009 | 5 p.m.
- MGM Mirage, Dubai World working on CityCenter funding plan (4-17-09)
- Report: MGM, Dubai World reach deal on CityCenter (4-17-09)
- Report: Icahn, equity fund push for MGM bankruptcy (4-16-09)
- MGM Mirage gets waiver for $70M CityCenter payment (4-13-09)
- Dubai World wants assurance of CityCenter funding (4-10-09)
- MGM Mirage stock surges on corporate financing news (4-6-09)
- MGM Mirage hires investment firm (4-4-09)
- Australian businessman weighing CityCenter investment (4-3-09)
- CityCenter contingency plan emerges; investor shows interest (3-28-09)
- CityCenter safe — for now (3-28-09)
- In a recession, a delay could be seen by rivals as a positive development (3-28-09)
MGM Mirage and Dubai World said Wednesday they settled their differences over funding for CityCenter, with MGM Mirage agreeing to cover potential cost overruns and Dubai World agreeing to pay back some CityCenter payments that had been covered by MGM Mirage during the past two months.
And lenders agreed to fully fund the remaining money needed to finish construction of the complex, which has an updated budget of $8.5 billion, MGM Mirage said.
And importantly, MGM Mirage said in a flurry of announcements that it obtained waivers from its lenders to allow it to proceed with the new CityCenter funding plan. Under both deals, MGM Mirage put up additional collateral in the form of some casinos and undeveloped land -- those assets now probably cannot be sold unless other security replaces them. The company also again warned that if it can't correct its balance sheet problems, it may elect to file for bankruptcy.
Under the terms of the credit agreement amendment and waiver, MGM Mirage will be able to fulfill its remaining equity contributions to CityCenter through the issuance of a $224 million letter of credit.
The bottom line is that the most important construction project in Las Vegas and the gaming industry will proceed and open as scheduled, with it likely boosting revenue for MGM Mirage but hurting competitors already suffering from an oversupply of hotel rooms in Las Vegas.
"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," said Jim Murren, MGM Mirage chairman and chief executive. "We continue to work with our advisors and lenders to reach a long-term restructuring of MGM Mirage's indebtedness and those discussions remain positive and constructive. Our next step will be to finalize our restructuring plans and position MGM Mirage for future growth and success."
The restructuring possibilities most mentioned include asset sales, debt swaps, the swapping of debt for assets and an equity infusion. The restructuring is needed for MGM Mirage to cover payments on its $13 billion in debt -- payments it may have trouble covering because the economic slowdown has reduced cash flow at the casino giant.
Under the settlement with Dubai World, Dubai World will drop a lawsuit it filed against MGM Mirage in March that demanded that problems with the joint venture be resolved.
"We are pleased that MGM Mirage and Dubai World, with the strong support of CityCenter's lenders, have agreed to a comprehensive plan for the financing and completion of CityCenter," said Murren and Chris O'Donnell, Dubai World's director of the CityCenter joint venture.
"CityCenter is now fully funded and on track to open in December 2009," they said in a statement.
Spokesman Gordon Absher said CityCenter will begin opening even earlier, with the Vdara Hotel & Spa set to open Oct. 1 and the main resort and casino, ARIA, opening in December.
The reduced $8.5 billion budget announced today includes some scope changes -- the Harmon hotel is not as large as planned, for instance -- as well as reductions in costs for labor and raw materials as the recession drove such costs down around the country. The cost over years of development had been reported as high as $9.1 billion and most recently was reported at $8.7 billion.
Prior to trading in its stock being halted in advance of the announcement, MGM Mirage was trading at $6.18, up 6.6 percent or 38 cents.
Terms of the deal announced today include:
--MGM Mirage will be responsible for completion costs to the extent net condominium proceeds are less than $243 million and for completion costs in excess of the current budget of $8.5 billion.
--Dubai World has agreed to fully fund its original sponsor contributions to CityCenter, including $135 million in payments previously funded by MGM Mirage on Dubai World's behalf. Dubai World is relieved of all completion guarantees.
--Until the completion of CityCenter, MGM Mirage's obligations with respect to additional construction costs, if any, will be supported by the assets of Circus Circus Las Vegas and certain adjacent land through a completion guarantee.
--The CityCenter credit facility was amended with changes in the maturity date, the interest rate margin and changes in how condominium sales proceeds are applied to construction and debt; and financial covenants were modified to give CityCenter greater flexibility during its first 18 months of operation.
Under the plan, both Dubai World and MGM Mirage will fund their remaining equity contributions to CityCenter through letters of credit. In addition, CityCenter's lenders will immediately fund the full $1.8 billion senior secured credit facility, the companies said.
"CityCenter will be unlike anything anyone has seen in Las Vegas or anywhere else. We are confident in the potential of CityCenter to contribute significantly to our cash flow," said Murren. "CityCenter is a powerful engine for growth and employment in Las Vegas and Nevada. With all funding in place, we will focus, along with our partner, on planning for an exciting opening in December and continuing to book rooms and conventions. We appreciate greatly the strong support of our lenders, who share our vision as to the importance of this project to the Las Vegas community and the entire state of Nevada."
O'Donnell said, "This agreement provides a stable financial framework for one of the most exciting destination resort development projects ever to be constructed. MGM Mirage is the industry's premier luxury hotel, resort and casino developer and operator. 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."
In the other announcement, MGM Mirage said it entered into an amendment to its senior credit facility, including a waiver through June 30, of the requirement that the company comply with the senior credit facility's financial covenants.
Under the terms of the amendment, the company repaid $100 million under the senior revolving credit facility, which is now not available for re-borrowing without the consent of the lenders. In addition, the company has agreed to grant the lenders security interests in the assets of Gold Strike Tunica (Mississippi) and certain undeveloped land on the Las Vegas Strip, subject to requisite gaming and other approvals, to secure debt under the facility of up to $300 million. The company's MGM Grand Detroit, which is a co-borrower under the senior credit facility, has agreed to grant the lenders a security interest in its assets to secure its borrowings under the facility, subject to gaming and other approvals.
MGM Mirage issued this cautionary language about today's deal:
"The company intends to work with its lenders to obtain additional waivers or amendments prior to June 30 to address future noncompliance with the senior credit facility; however, the company can provide no assurance that it will be able to secure such waivers or amendments. If additional waivers or amendments are not obtained, following expiration of the waiver on June 30, the company will be subject to an event of default related to any noncompliance with financial covenants under the senior credit facility. Under the terms of the senior credit facility, noncompliance with financial covenants is an event of default, allowing the lenders (with a vote of lenders holding more than 50 percent of the borrowings outstanding under the senior credit facility) to exercise any or all of their remedies, including demanding immediate repayment of all outstanding borrowings under the senior credit facility. In addition, there are provisions in the indentures governing the company's senior and senior subordinated notes under which a) the event of default under the senior credit facility, or b) the exercise of remedies under an event of default under the senior credit facility, would cause an event of default under the relevant senior and senior subordinated notes, which would also allow holders of the senior and senior subordinated notes to demand immediate repayment and decline to release subsidiary guarantees."
"If the lenders exercise any or all such rights, the company may determine to seek relief through a filing under the U.S. Bankruptcy Code," MGM Mirage said.