Dubai World, in an effort to save the troubled City Center development in Las Vegas and its relationship with co-investor MGM Mirage, is proposing the two and their lenders pledge billions still needed to complete the project, according to people familiar with the matter.
Work at the $8.6 billion resort and casino development is in danger of halting due to financing woes and a dispute between the joint owners. The proposal calls for Dubai World, MGM Mirage and lenders to commit a combined $3 billion.
City Center's fate has been in doubt in part because MGM Mirage's financial situation has worsened. Dubai World, a conglomerate led by Chairman Sultan Bin Sulayem and owned by the government of Dubai, is suing MGM Mirage for alleged mismanagement and cost overruns at the project. Last month, it skipped its half of a $200 million construction payment.
The proposal, if accepted, would increase financial pressure on MGM Mirage, which is laboring under $13.5 billion in debt. MGM Mirage could also need approval from its lenders to pledge the entire portion of its share of the funds.
An MGM Mirage spokesperson declined to discuss the proposal, saying, "We would not disrespect our partner by having discussions between us held in the media." A Dubai World spokesperson had no comment on the proposal, but said the conglomerate is "continuing to search for solutions to enable the completion of City Center."
Dubai World is worried that it could lose its $4.3 billion investment in City Center if MGM Mirage is forced into bankruptcy. Last month, MGM Mirage auditors expressed doubt about the company continuing as a "going concern."
Although details of the proposal were not immediately available, a full funding commitment from all parties would require that banks forego an earlier agreement to release a $1.8 billion loan only after MGM Mirage and Dubai World had put in more cash of their own. The arrangement would also preserve the project in event of a bankruptcy filing by MGM Mirage, controlled by billionaire investor Kirk Kerkorian.
MGM Mirage recently won a waiver from its lenders allowing it to solely pay a $70 million City Center construction bill due Monday, according to a person with knowledge of the situation. The payment would keep work going and stave off a possible shut-down until the next deadline, at the end of this month.
City Center's potential collapse is the most prominent example of how the excesses of Las Vegas are now plaguing the casino industry, which took on billions of debt during boom times to fund expansion plans. City Center, built on 67 acres, includes three luxury hotels, two residential towers, public art from Claes Oldenburg and Maya Lin, its own mono-rail, theatre and fire station.
Just seven months ago, the City Center plan appeared to be on track. Executives from both companies gathered for a private dinner at the Bellagio on the Las Vegas Strip to celebrate a crucial financing that would help them complete the project. Cocktail waitresses wore clear plastic outfits with strategically placed tags noting the project's environmental certification, and female performers descended from the ceiling on wires, according to a person who attended.
But Dubai World's concerns about the project and MGM Mirage's troubles soon emerged. The price of steel had soared, and City Center's costs ballooned, Dubai World officials said in interviews earlier this month.
Dubai World officials said MGM Mirage managers chose the most expensive materials, even as the global economy tanked and Las Vegas tourism plummeted. An MGM Mirage official said Dubai World was "privy to" budgets and "approved them along the way."
Meanwhile, projections about the project's funding turned out to be too optimistic. The Las Vegas real-estate market collapsed and money which City Center had hoped to raise by pre-selling luxury condos fell short.
In March 2009, Dubai World officials flew to Las Vegas to meet with MGM Mirage officials and asked if the gambling company could continue to fund its share of the $200 million to $300 million monthly City Center construction tab. "We were given all sorts of comfort" by MGM Mirage executives, a Dubai World representative said.
MGM Mirage officials also wondered about Dubai World's ability to pay, as the global recession began to impact the emirate's economy. Dubai World had scaled back or delayed projects, including a new Trump Tower hotel it was building in Dubai.
A person close to MGM Mirage said the company asked Dubai World about its financial position and ability to keep funding City Center, and received "friendly but vague assurances."
Dubai World officials say they lobbied MGM Mirage to consider delaying or slowing construction on parts of City Center. But MGM Mirage argued against it. Dubai World said it was shocked when MGM Mirage in March filed its annual report to the Securities and Exchange Commission, revealing that the company was in dire straits.
Source.
