Facebook
Fark
Digg
Reddit
Stumble
Friday, May 1, 2009 | 2 a.m.
Jim Murren
Audio Clip
- Jim Murren, MGM Mirage chairman and chief executive, on how a shortfall in CityCenter financing led to the partners putting in more cash.
- You need to upgrade your Flash Player
Audio Clip
- Murren describes how the budget for CityCenter fell from more than $9.2 billion to $8.5 billion.
- You need to upgrade your Flash Player
Audio Clip
- Murren explains why MGM Mirage still has bullish prospects for CityCenter.
- You need to upgrade your Flash Player
Audio Clip
- Murren on why property sales aren’t necessarily going to solve the company’s financial woes.
- You need to upgrade your Flash Player
Sun Archives
- CityCenter deal sends MGM Mirage stock soaring (4-30-2009)
- CityCenter deal sends MGM Mirage stock soaring (4-30-2009)
- MGM Mirage, Dubai World working on CityCenter funding plan (4-17-2009)
- Report: MGM, Dubai World reach deal on CityCenter (4-17-2009)
- Report: Icahn, equity fund push for MGM bankruptcy (4-16-2009)
- MGM Mirage gets waiver for $70M CityCenter payment (4-13-2009)
- Dubai World wants assurance of CityCenter funding (4-10-2009)
- MGM Mirage stock surges on corporate financing news (4-6-2009)
- MGM Mirage hires investment firm (4-4-2009)
- Australian businessman weighing CityCenter investment (4-3-2009)
- CityCenter contingency plan emerges; investor shows interest (3-28-2009)
- CityCenter safe — for now (3-28-2009)
- In a recession, a delay could be seen by rivals as a positive development (3-28-2009)
Mirage For Sale?
Viewing video requires the latest version of Adobe's Flash Player
Is MGM Mirage pondering a potential sale of one of its premier properties? Plus, charges that the smoking ban is hurting business go up in smoke.
MGM Mirage executives said Thursday that the deal struck this week to finance completion of CityCenter marks a turning point for the company, which has been pushed to the edge of bankruptcy by the recession.
The deal was the result of a months-long effort to persuade eight banks — across four time zones, with representatives speaking at least three languages — to immediately risk $1.8 billion on the massive project, which had been in serious doubt.
“This has been a 24-7 job involving conference calls at three in the morning,” MGM Mirage CEO Jim Murren said Thursday. “There were so many different constituents, and their desires and restrictions, their conflicting objectives, all have to be taken into account.”
The effort succeeded because the banks bought into the project’s and the Strip’s long-term potential, Murren said.
MGM Mirage negotiated a separate deal with the company’s banks, many of the same institutions financing CityCenter, giving the company until June 30 to figure out a plan to restructure $13.5 billion in debt.
Addressing speculation that MGM Mirage would have to sell off properties to survive, Murren said he was confident the CityCenter financing deal will allow the company to emerge from the recession largely intact.
“There are no tag sales going on,” Murren said. “This is not what will drive our restructuring.”
•••
The agreement between MGM Mirage and Dubai World and their banks will provide the remaining cash needed to finish the resort on schedule and under a tightened budget of $8.5 billion.
More significantly for MGM Mirage, Las Vegas’ largest private employer and the state’s biggest taxpayer, the deal represents a major step toward long-term solvency.
“I think we’re going to look back on (this deal) as a turning point for our entire community,” Murren said. “This is an inflection point on the road to recovery.”
MGM Mirage’s agreement with its creditors allows the company to pay less than $300 million in cash to fund the company’s remaining financial commitment to the project.
Dubai World agreed to drop its lawsuit against MGM Mirage over management and the rising price tag of CityCenter and will pay its 50 percent share of the funding needed to complete the project, about $400 million. Dubai World now has the comfort of knowing that MGM Mirage is responsible for any costs that exceed the $8.5 billion threshold.
The parties kissed and made up just before a Thursday deadline for a monthly payment on CityCenter. Had the payment not been made, the bank financing might have been in jeopardy, which could have resulted in a bankruptcy filing for the CityCenter joint venture and a stalled project.
Unlike typical bank deals, the CityCenter agreement required 100 percent approval from all eight banks.
Until now the banks, which had committed in October to lend the money for CityCenter, haven’t put a single dollar into the project. Payments from MGM Mirage and Dubai World, which has invested more than $4 billion in cash in CityCenter, have so far funded construction of the 67-acre resort complex, which will open the first of its six towers, Vdara, in October. When CityCenter is complete, the partners will have sunk nearly $7 billion into the project.
“In Vegas terms, we’re all in,” Murren said. “We have all the money we need to finish CityCenter, money the partners have already spent or have committed to spend.”
•••
Now that a CityCenter bankruptcy filing has been averted, MGM Mirage must reduce debts that are too great a burden to be supported by the company’s declining earnings and fend off a potential Chapter 11 filing.
MGM Mirage has emerged from these marathon CityCenter negotiations with a key bargaining chip in the coming battle with the company’s own lenders. Even as it stares down billions in debt maturities and casino earnings that have been halved, MGM Mirage didn’t give up collateral in any of its premier Strip properties — a sign that the company’s bargaining power with lenders remains strong.
MGM Mirage gave the CityCenter lenders collateral in the company’s Circus Circus property and adjacent land. If MGM Mirage can’t make those payments and CityCenter doesn’t open as planned, the banks would have rights to Circus Circus and could, say, sell the property and keep the proceeds. The banks will have a lien on Circus Circus only until CityCenter is complete, as well as collateral in undeveloped land across from the Luxor, MGM Grand Detroit and the Gold Strike casino in Tunica, Miss.
Murren said the company gave up very little, retaining the ability to offer at least $2.5 billion worth of properties as future collateral to lenders.
Liens may become a key bargaining chip in efforts to avoid bankruptcy.
Although lenders and Dubai World received concessions from MGM Mirage in this deal, financial observers say MGM Mirage probably got the best deal imaginable under the circumstances.
MGM Mirage also agreed to repay $100 million in a revolving credit line — a relatively small amount of money, analysts say, and a recognition of the company’s precarious finances.
While the company has marketed its MGM Grand Detroit and Beau Rivage casino in Biloxi, Miss., for sale, it has steered clear of marketing any of its Strip casinos to potential buyers. Murren said he has been “inundated” with offers for properties but hasn’t acted on them.
MGM Mirage’s casinos, especially its crown jewels along the Strip, are more valuable to the company as collateral in a potential debt exchange than for the one-time cash they could yield for the company, which wouldn’t make much dent in the company’s finances after taxes are paid, Murren said.
•••
Murren said he isn’t resting easy after helping CityCenter dodge a bullet, which will save 20,000 construction and resort jobs and keep a significant investment in the company’s future intact.
The deal coincides with a company-
wide mandate to strengthen MGM Mirage against future downturns.
“Las Vegas was a little bit slow to react to a changing economy,” he said. “These are scars that are going to be with us for a long time and it’s incumbent upon us to remember what we did and the sacrifices we made as a company.”
MGM Mirage will hopefully emerge “more humble, more thoughtful, more nimble than ever, and more efficient,” he said.
The company’s chances for a successful restructuring without resorting to bankruptcy reorganization are good if the banks continue to cooperate with the company as they have been, Murren said.
“This is going to be difficult,” he said. “It’s a risky world right now.”
Nor will Murren get more sleep — he’s hitting the road to meet with lenders and will draw up a recovery plan in the next month or two.
“All roads to our total recovery lead through CityCenter — we had to solve that riddle first,” he said. “This was the best possible outcome for us.”
Dubai was smart-they wanted a final lump sum price for the overall project, and they got it. Now the pressure is on the Architects and Engineers to keep down the costs of changes and revisions. And the pressure is on Perini and the subcontractors to finish on time and on budget. With the project being built by Union loafers who know they face imminent layoffs, and a total lack of new work, it's going to be quite a challenge.
God knows how they will ever sell the condo units when it does open. 98 total units were sold in March-in the entire city. This will be long, drawn out nightmare.....
"God knows how they will ever sell the condo units when it does open."
Bargain basement prices. However, the building inspectors should go thru those units with fine tooth combs to avert any construction defect lawsuits in the future. But we know that's not going to happen - the inspectors doing their jobs. We can expect the lawsuits, though.
Dear Ruby777 -- you can forget about MGM providing "bargain basement pricing" for condos in CityCenter. Their prices are completely out of touch with reality in the current LV market, and they won't provide any sort of concession. And, of course, the issue remains: how will buyers who have already put 20% down on a condohotel unit be able to close when no lenders are providing financing for risky condohotels?
However, you will likely see bargains just as soon as people who bought there are able to list their units for resale on the REAL market, which is quite different than MGM's fantasy market. Just as we've seen with MGM Signature, Panorama, etc., you will see units selling for a fraction of what the original buyers paid for them. Sadly for the original buyers, though, they will be left holding the bag with hundreds of thousands of $$$ in losses . . . . .
There's a saying that goes--if you're $100,000 in debt, you're in trouble. If you're $100 million in debt, your bank is in trouble. If you're $100 billion in debt, then the whole world is in trouble. The world just got a little deeper into trouble. What kind of leverage, or coercion did the builders use to get more loans for this disaster? What kinds of favors were called in? Or bribes? Or blackmail?
this is what happens when the governments bailout banks, they lend it to a monopoly of a company which is destroying vegas with insane schemes and high prices.
We wonder which UK banks helped in bailout, as I am sure the taxpayers will be very angry after bailing out banks..
They will not be able to afford to let these condo units go at "bragain basement" prices, not after the massive costs that it took to put this place up. And I agree there will be few buyers at the prices MGM needs to sell at. And I also agree many buyers are going to walk away with their 20% down earnest money being lost because they will make the honest analysis that they will lose more by completing or because they won't be able to complete due to lack of financing.
I see most of these units being MGM-owned hotel rooms in the end.
hey, how come there's no dot & line for Dubai on that map?
non from China.......they must be doing all their lending to Obama right now for future "bailouts"
LOL ! (follow the money huh?)
This is great news for the MGM Mirage employees, who will have their job secured until at least the Citycenter completion.
Now MGM Mirage will need to prepare to embrace the real challenge: one year from now when the 8.6 billion construction loans come due and they have to find permanent lenders to take out the construction financing. Plus they will also have other debts maturing as well to pay off loans from the Mandalay Bay acquisition and the construction of the Signature towers etc.
MGM surely has gone ALL IN on this. We shall see whether this gamble pays off.
MGM Mirage will end up selling some of their properties down the road and will have no choice but to do so in order to raise capital. They lost the gamble on this one by constructing City Center in a historically bad financial climate. The company will be greatly scaled down.. it is just a matter of time.
Pride goeth before destruction, and an haughty spirit before a fall. American King James Version
I resent the term , "union loafers". Being a union carpenter and staunchly loyal to what having a union represents , I feel that you can't judge an entire organization or group of organizations by what you may have witnessed or heard about from others in the past . I have been a carpenter for 18 years and until I joined the union , never had healthcare , a pension , or even a fair wage for my hard work and dedication . So please use some intelligence when you speak of the unions , we as members are better qualified than 99% of our non-union counterparts.
i have dealt with construction unions alot and yes the unions take care of their members but I will tell you that the term union loafers is very true. Being in construction managment i have had union workers and non union workers on my sight and the jobs were always off schedule due to the union trades and never off schedule with non union trades unless the union trades caused them to be so.Then I had the task of pushing the non union trades to get us back on schedule Union Loafers oh yes Put 2 jobs side by side and completly equal in task and non union will finish first and less troubles with inspections