he pact secures MGM Mirage's payment obligations for construction costs with its Circus Circus Las Vegas casino and adjacent land. MGM Mirage and Dubai World each agreed to fund their remaining payments for CityCenter with letters of credit, and the lenders agreed to immediately fund us$ 1.8 billion to finish the project, rather than wait until each partner had fully paid its share.
The company said CityCenter is now on track to be open by December 2009, with the Harmon Hotel & Spa opening in 2010. "This was the best possible outcome. It's so vastly superior to any other option that we had to explore as to make us almost giddy with relief and excitement," MGM Mirage CEO Jim Murren told The Associated Press in an interview on Wednesday.
Murren said the agreement puts the casino company in the best possible position as it works to restructure its balance sheet, which included more than $13 billion in debt as of the end of last year.
MGM Mirage said Wednesday that it had reached a separate agreement with its own lenders to waive payment obligations until June 30, extending a prior agreement by one and a half months. Murren told the AP that the 45-day extension gave the company "more than enough time" to come up with a comprehensive plan to fix its balance sheet.
He said the company is well on its way toward solving its debt problems, but he declined to be more specific about the direction MGM Mirage was taking.
Bill Lerner, founder of research and advisory firm Union Gaming Group, called the waiver a "giant step" for MGM Mirage in avoiding bankruptcy. "I certainly feel better about their ability to survive today than I have in recent weeks," the casino industry analyst said.
To get the extension, MGM Mirage paid back us$ 100 million under its revolving credit facility and newly secured us$ 300 million of its debt with its Gold Strike Tunica casino in Mississippi and undeveloped land on the Las Vegas Strip. It also put up its MGM Grand Detroit casino as collateral for the rest of its credit facility, now about us$ 6.6 billion. All the deals are subject to approval by gambling regulators, the company said.
Lerner said he thinks MGM Mirage could get a permanent waiver from its lenders by putting up more significant collateral to secure the loans. MGM Mirage has about us$ 2.3 billion in assets to offer as security, Lerner said.
MGM Mirage received what it called an irrevocable letter of credit for us$ 224 million to secure its payments for CityCenter, which the casino company has touted as the most expensive private commercial development in U.S. history. As part of the deal between the partners, Dubai World agreed to repay us$ 135 million in construction costs it owed that MGM Mirage has paid on its behalf.
Under that pact, MGM Mirage also newly agreed to pay any completion costs if the project goes over its current projected budget of us$ 8.5 billion. That figure has been coming down from as high as us$ 9.2 billion in recent months as MGM Mirage cut costs, modified the project and renegotiated with its contractors.
Lerner said the agreement gives MGM Mirage incentive to make sure that the CityCenter finishes at or under budget, and affirms that Dubai World seems confident that the casino company is well on its way to fixing its problems. "I don't think they (Dubai World) want their joint venture to be subordinate to MGM Mirage's balance sheet dynamic," Lerner said.
Murren compared the stress of working through this process with Dubai World to what he imagines goes on in other board rooms and in other situations around the world each day. "At all times the partnership has respected one another," Murren said, in spite of the lawsuit. "These are difficult issues to sort through - we have sorted through them all."
Shares in MGM Mirage halted trading about 45 minutes before the market's close Wednesday as the company prepared its announcement. They ended at us$ 6.18, up 38 cents or 6.6 %. Murren said he sent a note to employees informing them of the moves, which he considered the most significant of the year so far for MGM Mirage.
"We knew that all roads for the restructuring led through CityCenter, and that is why we have spent the majority of our time resolving this very complicated issue," he said. "Now, we'll take about 10 minutes to give ourselves high fives and take a deep breath, and we'll go back. In fact, I'm going to walk across the hall right now with our advisers to continue to work on the corporate restructuring."