by Hillary LaClair, Senior Editor
March 27, 2009
MGM Mirage avoided filing for bankruptcy in its CityCenter project this week by making a $200 million funding payment and allowing construction of the project to continue while adding to the near $9 billion cost of the site.
The payment made to the company’s lenders was approved and covered $100 million of which was owed by joint-venture partner Dubai World. Dubai World had entered into a lawsuit with MGM Mirage earlier this month claiming that a mismanagement of the project had lead to an overrun in costs. The million dollar payment has put at least one month’s stay on the company having to file for a Chapter 11 bankruptcy reorganization of the U.S.’s most expensive commercial development.
“We are doing our utmost to see that this project continues, keeping thousands of Navadans employed,” said MGM Mirage Chairman and CEO Jim Murren. “We will continue to make every effort to see that CityCenter is completed and becomes an even greater economic driver for the region.”
The introduction of CityCenter Casino and Resort may provide a vital asset to Nevada, which continues to struggle in the economic downturn with 26 percent of the state’s workforce in the casino industry. CityCenter workers are very excited to learn that they will remain employed. "Everybody was wondering what was going to go on, were we going to have jobs," Todd Greeley, a union laborer, said about the general feeling among workers when they arrived for work at 4 a.m. Friday. "Especially the way times are now."
According to research in Las Vegas, the unemployment rate in Nevada stands at 10.1 percent and could increase to 11.1 percent if CityCenter were to close, laying off 8,500 construction workers on top of the 10,000 hired full-time for the casino resort. "What if MGM restructures and halts CityCenter, literally stops it? The short-run impact of those jobs could be really unpleasant," said Alan Schlottmann, economics professor at the University of Nevada. "If all of a sudden those guys aren't spending money, what's the economic multiplier?"
Analysts are puzzled at Dubai World’s unwillingness to pay its portion of the debt. JP Morgan gaming analyst Joe Greff said that the company may have made this decision for one of three reasons. It either wishes to walk away from the project, sell its stake or it may not have the money to invest.
"Based on today's events, we have a tough time believing that Dubai World is trying to negotiate a bigger stake in the property," Greff said. "Dubai World still has to obtain at least one more form of Nevada gaming regulatory approval and we have to wonder how they would secure this if they are refusing to fund contractual equity stakes."
CityCenter has in preparation of Dubai World’s not holding up its end of the bargain, hired bankruptcy specialists, Dewey & Leboeuf. The company is owned in a 50-50 partnership between MGM Mirage and Dubai World. Dubai World has not commented on the reason for its skipping its payment, but did say in statement, "Dubai World appreciates the support of MGM Mirage's bank group and the CityCenter joint venture's bank group in providing a waiver to its client that allows this payment."