ubai World subsidiary Infinity World claims in a lawsuit filed Monday in Delaware Chancery Court that MGM Mirage’s statements about its financial condition put the project at risk. Dubai World’s general counsel, George Dalton, in particular cited concerns about a statement in MGM Mirage’s annual report warning it could default on its loans for CityCenter - which could force MGM Mirage or the joint venture to seek bankruptcy court protection.
Struggling under more than us$ 13 billion in debt, MGM Mirage won a waiver from the terms of some of its debt last week, giving it until May 15 to get its finances in shape. CEO Jim Murren has said CityCenter is MGM Mirage’s top priority. The firm said that it has cash available to meet its financial obligations.
Infinity World is asking the court to award it unspecified damages and relieve it of its obligations under the venture, but Dalton said Infinity wants to see CityCenter through. "What we are attempting to do is complete this project," Dalton said during a brief conference call with reporters in Dubai.
Dubai World owns a 50 % stake in the casino, hotel, retail and residential CityCenter development and controls about 9.5 % of MGM Mirage shares. “We’re not saying MGM won’t be involved," Dalton added. "We’re anxious to work with them, but we need to see them come out of their financial problems."
Adam Cohen, founder of the independent credit research firm Covenant Review, said Dubai World and Infinity may have sued to stabilize their interest in the project. Dalton said there is "no certainty" the casino operator can continue to operate even until May 15 - and that could jeopardize the massive development, the first stage of which is to open late this year. Cohen said the lawsuit makes it more difficult for MGM Mirage to refinance its debt.
Murren told investors last week that MGM Mirage’s relationship with Dubai World was "outstanding." Analysts have questioned the project’s potential when the US economy is under severe strain.
Fitch Ratings downgraded MGM Mirage’s Issuer Default Rating on Monday to the lowest possible junk rating and wrote in a statement that default and potentially a "Coercive Debt Exchange" seems inevitable soon. The ratings agency said MGM Mirage’s options for raising more cash might include asset or debt sales, and modifying or extending the long-term debt it already has.
MGM Mirage, which lost us$ 855 million in 2008, operates and owns all or part of 19 casinos in the United States and Macau, the Chinese gambling enclave. The company made us$ 1.58 billion in 2007.