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Could MGM Mirage's (NYSE:MGM) CityCenter be the next resort and casino project to crumble under the weight of its debt?
Facing a looming debt payment and already slapped with a lawsuit, the 67-acre development on the Las Vegas Strip is preparing a potential bankruptcy filing that could come as early as this weekend, The Wall Street Journal said on Friday. In fact, MGM Mirage's stock has been halted Friday afternoon for news pending. CityCenter, currently under construction and slated to open in December, has reportedly hired Dewey & LeBoeuf LLP for its bankruptcy counsel, the Journal says, while Weil, Gotshal & Manges LLP is restructuring counsel for MGM, according to a Bloomberg report. Lender Deutsche Bank AG has already foreclosed on the Cosmopolitan project next door that Ian Bruce Eichner had been developing. And Boyd Gaming Corp. stopped construction last August on the $4.8 billion Echelon project. Things went south for CityCenter after MGM's joint venture partner in the project, an affiliate of Dubai World, sued MGM for breach of contract in the Delaware Court of Chancery and indicated that it would not be paying its half of a $220 million interest payment due Friday. The Dubai World affiliate, Infinity World, alleges a recent going concern disclosure by gaming company MGM is an event of default, as well as that MGM mismanaged the $8.6 billion project and underestimated costs, according to a research note from Barclays Capital high-yield analysts John Kempf and Andrew Brophy. When Dubai World took a 50% stake in CityCenter in August 2007 for $2.7 billion, the estimated cost of the project was $7.4 billion. Infinity World "is being asked to pay significantly more and getting less, with only uncertainty about MGM's future," it asserts. The Barclays Capital note says Infinity World still seeks to complete CityCenter on acceptable terms and highlights some potential effects of a delay, including cash savings. Still, CityCenter, which is set to have hotel-condominiums, residential towers, a casino and a shopping center, could bring down MGM along with it, as the note and other sources say. The Infinity World suit "does potentially increase the chance of a bankruptcy filing," Barclays Capital says. According to a news report, analyst Jeffrey Lodsdon of BMO Capital Markets on Friday downgraded MGM and cut its price target by 70%, from $10 to $3. "Dubai World's lawsuit, combined with the increased likelihood that MGM will need to try to come up with new credit agreements so it does not default on existing ones, shifts the casino operator's stock 'to a work-out situation that could take longer to solve and result in a more dilutive solution,' " the report said, quoting Lodsdon. MGM recently raised $600 million in cash by selling the Treasure Island Hotel & Casino in a $775 million deal, but it still must deal with more than $13 billion in debt as earnings slump along with consumer spending. Will MGM fold or hope for good news on the turn and river? - Jamie Mason
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From: Jason ,
Posted on:
April 1, 2009 12:42 PM
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Hey - I am a unit owner of the Cosmopolitan resort and casino next door to the City Center Project. I belong to a group of over 250 other unit holders that have filed a class- action suit to get our deposits back from this terrible investment. Want to join us? Send me a email for information. Hurry as we filed in early February before the Robin Leach suit and may be directed by the courts to no longer accept plaintiffs.
regards,
Ralph in San Diego
RUFFUS327@aol.com