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In spite of a worsening cash cruch for developer MGM Mirage, CityCenter will be mostly completed by the end of the year, spokesman Alan Feldman says.
Tuesday, March 3, 2009 | 2 a.m.
Sun Archives
- The state of our engine (3-1-2000)
- MGM Mirage wants to tap $4.5 billion credit (2-27-2009)
- MGM, Dubai World said in talks with Deutsche Bank (2-23-2009)
- For strapped casino giant, sale provides sure cash (12-16-2008)
- MGM Mirage launches international gaming division (12-9-2008)
- New CEO says he's ready to lead MGM Mirage (11-18-2008)
- Lanni exits at perilous time as industry faces hardship (11-16-2008)
Beyond the Sun
Just months ago MGM Mirage, with billions of dollars in cash at its disposal, was thought to be well braced for the recession.
But last week’s news that MGM Mirage has tapped the remaining money from a $4.5 billion credit line is adding anxiety among investors for the company’s future.
And in a sign of how swiftly the nation’s economic headwinds have stiffened, analysts now say Nevada’s largest employer is at risk of filing for Chapter 11 bankruptcy protection as it enters the final stretch of building the $9 billion CityCenter. Major loans are coming due over the next two years even as the company is on the hunt for another $1.2 billion to finance completion of the project.
MGM Mirage spokesman Alan Feldman declined to comment on bankruptcy concerns or to elaborate beyond the company’s announcement Friday.
Analysts say there is a slim chance that, because of dwindling cash, MGM Mirage will have to delay completion of CityCenter.
One well-placed source said that was one of many possibilities being considered by the company until banks free up money.
But Feldman said that with the exception of the Harmon hotel, which is expected to open in 2010, MGM Mirage “continues to work on CityCenter” for a late 2009 opening. Dubai World remains a committed partner, he added.
The company has not yet reported fourth-quarter earnings. In the third quarter, which worsened from the first and second quarters, earnings fell about 30 percent from a year earlier. Including the effect of cost cuts and removing one-time events that don’t relate to performance, earnings fell about 14 percent in the third quarter.
That hardly sounds like a doomsday scenario for a company that generates more than $6 billion in cash each year.
And yet, it’s bad news for MGM Mirage, which has billions more in loans coming due in the next few years while trying to borrow more money in the tightfisted capital market.
MGM Mirage has $1.3 billion in bonds due in 2009 and another $1.2 billion in bonds due in 2010. On top of that, the company has a $7 billion bank loan coming due in 2011, along with another $532 million in bond maturities.
That’s why the three major bond rating agencies, which assess bankruptcy risk, jumped at MGM Mirage’s announcement Friday that the company would borrow $842 million in cash remaining under a $4.5 billion revolving credit line because of the turbulent credit markets and “uncertain state of the global economy.”
MGM Mirage stock plunged to an all-time low of about $3 per share Monday, down about 95 percent from a year ago.
The rating agencies, fearing that MGM Mirage is burning though the cash it needs to pay mounting debts, said it is running out of options to secure additional money.
“It’s unfortunate that the company has so many near-term maturities at a time when earnings are so weak and the credit markets have seized up,” said Peggy Holloway, vice president and senior credit officer of Moody’s.
Standard & Poor’s and Fitch Ratings said MGM Mirage is likely to default on its bank loan this year because the company’s debts are too high, relative to earnings.
Although such defaults don’t necessarily lead to an immediate Chapter 11 filing but rather a new round of bank negotiations, some analysts say the company’s debts are so massive it may need to restructure them, which is most efficiently done in bankruptcy court.
Unlike other industries, where assets are commonly liquidated to pay creditors, major Las Vegas casinos have continued to operate in Chapter 11, either under the same owners or new owners. Lenders sometimes receive equity in a company as debts are forgiven.
Even if the company obtains waivers from its banks, amends the terms of its loan or obtains the remaining cash needed for CityCenter, the company’s capital structure “may be unsustainable” given deteriorating business trends in Las Vegas, Fitch Ratings said in downgrading the company’s credit ratings Friday.
Fitch expects business to remain poor on the Strip throughout 2009 and likely into 2010. S&P forecasts a 25 percent drop in company earnings this year.
Typically, banks will negotiate with companies to amend the terms of their bank agreements with the understanding that a company can still generate significant cash to pay debts, though perhaps not as much as before. MGM Mirage and other casino companies have negotiated such amendments during the downturn, allowing them to incur higher debts in exchange for a higher interest rate.
The company has cut costs by hundreds of millions of dollars — a reaction to slower business as well as a recognition of future cash needs.
As the economy worsens and banks face their own mortality, analysts say they will be less likely to negotiate with companies that need cash the most. Analysts say MGM Mirage is negotiating with its banks and considering selling casinos to raise money.
Delaying the opening of CityCenter would make sense only if the company thinks revenue in the down economy would not sustain operating costs — an unlikely scenario, experts say.
On the other hand, MGM Mirage may have few options if it is unable to secure $1.2 billion in financing needed to complete the project and 50 percent owner Dubai World — facing its own concerns as the global downturn cools Dubai’s red-hot real estate market — is unwilling or unable to put in more equity.
Here's one company that has done so much for Nevada and Las Vegas. Hopefully they pull through out of this mess. Best wishes to their employees and management!
I posted 2 years ago that MGM was nuts to build City Center. Building a mega place based solely on gambling. Now they are toast. High dollar Union job, loafers sucking their dollars to the max. Even if they get the needed money, how are they going to make enough to pay it back? Terry Lanni bailed at the right time-Oops, I fudged my resume, see 'ya.
MGM needs to fire its CEO. Oh, they did? Seems Terrance Lanni lied about having an MBA, fired last year.
"Dubai's red-hot real estate market"?? Wrong, the mid-east resort of the super rich is bankrupt. The lavish spending frenzy of that desert metropolis has been on life support since world oil prices crashed.
These CEO's have all these degrees from big education systems like Havard, Yale, etc.
They all suck.
What is point of spending all that money on those expensive schools systems?
They are no smarter than a graduate from UNLV.
A valid point about ivy league schools but the UNLV part is way out of line. I know of employeers in Las Vegas who file resumes of UNLV graduates in the trash.
Hindsight + cynicism = the LV Sun Anonymous Reader Comments.
Times are tough, they will pass.
At the end of the day MGM and it's casinos will remain open and continue to generate positive cash flow. Regardless of how much debt they have as long as they are turning an operatiing profit the only changes you will see are varible staffing levels and news articles in the paper.
For the common person, they should really never see any impact of the financial troubles here; unless they own stock in the company...
Jame P Reza
You are so right. The majority of posters here are uninformed and uneducated blowhards. Speaking loudly and posting frequently does not equal quality of insight, constructive criticism or even knowledgeable commentary.
I read the comments for the humor value.
When the massive number of condominiums at City Center were announced, including their over the top price per square foot, I wondered to myself "Who will buy these?". Now it looks like there will be few buyers, even though the condos at the Harmon were eliminated.
I hope that MGM Mirage's management can turn things around by using the condominium spaces as deluxe hotel suites.
First, I worked there and I know. The design is impossible for any of the staff of Perini to build. The Super's cannot read the plans from the Architects and Perini is not telling the public the truth. The Aria will not open in 2009 for too many mistakes exist on the building just like Harmon. Where are the Inspectors? Where is OSHA? Are they taking money to keep their mouths shut?
How can you open a building in 2009 that has steel, water and serious other construction damamges that exist/remain from 2008, which has made the cost of the project exceed past the 9 billion cost?
Think about this people. If you love Las Vegas, someone better get Perini help. Perhaps the man over the MGM needs to know what Perini is doing to him. When they get finished with him, he will be picking peas or corn for a living instead of collecing gold coins! Wake up and look around. The project cannot and will not open in 2009. Oh! If it ever opens, please be prepared to run out of any of the structures in the web of City Center should the forecast call for high winds. 90 percent chance it will all tumble down and we know the story of Humpty Dumpty!
I've got a good idea: Just implode the entire citycenter project as nobody will buy these super expensive condos on the strip, anyway. then, once this is all flat bottomed out, build a nice park with big lakes, using up more water that could be used better. Or, hey, how about a 3 storey golf course, right on the Strip? Would be almost as sensational as all those fancy concrete buildings....
vegas is the pamela anderson of cities.
hot for about 10 years and now nobody cares.
visitor volume is everything. it's the one number that can't be spun. it's down month after month and until that number starts going up for a 3 or 4 month period, vegas has no shot of rebounding.
Good point stevem.......
Can't put lipstick on that pig.
The numbers will not start going up or stop going down until this cycle of layoffs stop occurring.
I do not see that happening until fall 2010 or Spring 2011.
city center will open late 2009. it will have a few resturants and floors open and will gradualy open up more. there is no reason to open the whole hotel complx. if you think the mgm will fail you are sadly mistaken. these people know how to make money and use it.
Sounds to me like there's a bunch of doom and gloom Obama Zombies posting remarks on this news page. Why is it that people love the negative and wish the demise of corporations that employee tens of thousands of Las Vegans to fail ? Are these the same people who agree with spend spend spend as a way of getting the country back on a financial upswing ? I am a very happy and satisfied employee of the MGM/Mirage Corporation and have been for over 15 years. They have been nothing but wonderful to me and my family. They have provided me with a lifestyle that is very comfortable and for that I am eternally grateful. I am confident that this corporation will recover from our own "economic" crisis. The strong prevail. GO MGM/MIRAGE. AND GOD BLESS AMERICA.
gqbossing how can you say the casinos will continue to turn and operating profit when they are all experiencing operating losses on an epic scale? Don't gloss over the problem. We all know this recession is still a long way from bottoming out and there's the matter of lost wealth when it does rebound. How on earth will these companies sustain given their debt loads and loss of revenue? I feel sorry for all those MGM Mirage employees. You know Harrah's is going down too. you will see the once unthinkable,shuttered casinos on the strip. Get your head out of the (desert)sand!
CIBA most of us don't want to see your co. fail. Let's face it though, during the boom, your co. had no problems charging ridiculous prices for rooms, food and drink and so on. Wasn't the mission statement to "separate the customer from his wallet asap"? For some people reveling in MGM/Mirage distress it's called "sticking it to the man".
"They are no smarter than a graduate from UNLV."
Stupid comment from an idiotic possibly non educated poster. Go freaking read a book! Moron!
"First, I worked there and I know."
You can push a broom better than anyone I know.
"The design is impossible for any of the staff of Perini to build."
Since you can't read a blueprint, you assume no one can.
This is what happens when you Conservatives keep cheering this recession into a depression. Your the REAL reason why investors keep dumping their stocks. You won't be cheering when your job gets whacked and you have to move back in with Momma.
Fine reporting by Liz Benston. Have to wonder what this could mean for the hundreds -- maybe thousands -- of vendors who are owed money by MGM Mirage.
Similarly, MGM Mirage and Harrah's Entertainment generate nearly 30 percent of Nevada's state general fund revenue. What could a bankruptcy mean for the state budget?
And of course, how many workers stand to lose their jobs in a bankruptcy filing?
The employees of Treasure Island better greet Mr. Ruffin with rose petals the day his purchase from MGM Mirage closes.
He just rescued all of them from that sinking ship (and the fact that the pirate show features a sinking ship is no small irony).
Where is the great Bobby Baldwin now? I have noticed they have stopped quoting the master of City Center months ago. I guess Bobby found out that it wasnt too tough to run the Bellagio in good economic times but now that it is a challenge, he is finding it a tough go. Oh well, keep chaing those million dollar checks Robert while laying off your employees at the same time.