CityCenter hires law firm for possible bankruptcy

The dispute between CityCenter developers MGM Mirage and Dubai World could land the giant project on the Las Vegas Strip in bankruptcy court.

An insider at MGM Mirage on Thursday night confirmed that the CityCenter joint venture has hired the law firm Dewey & LeBoeuf, potentially for a bankruptcy filing if that becomes necessary.

The source, who is familiar with negotiations that took place Thursday on the future of CityCenter, stressed that MGM Mirage itself did not hire the bankruptcy counsel. While MGM Mirage may face difficulties in making payments on its massive debt load, the source pointed out that there are alternatives to bankruptcy.

One way for big companies to reduce debt is to engage in bond exchanges, which is what Harrah’s Entertainment is doing and which may be an option for MGM Mirage. In the case of MGM Mirage, there’s also the possibility of an equity infusion from majority shareholder Kirk Kerkorian or others. Such an equity infusion is how Sheldon Adelson bolstered the balance sheet of Las Vegas Sands Corp. last year.

If MGM Mirage and Dubai World fail to make a USD 220 million payment for CityCenter due Friday, the project could be sent into bankruptcy reorganization.

A bankruptcy filing could bring work on the USD 8.7 billion project to a halt, though it could later resume once financing is arranged during the bankruptcy process.

Dubai World sued MGM Mirage on Monday, claiming MGM Mirage breached terms of the joint venture agreement to develop the USD 8.7 billion project, forcing Dubai World to invest more than expected for CityCenter while MGM Mirage’s financial future is in doubt.

Because of MGM Mirage’s financial troubles „the current path of the project is simply unsustainable,“ Dubai World said. Dubai World also alleges that MGM Mirage mismanaged CityCenter, going over budget and requiring higher-than-anticipated contributions from Dubai World.

MGM Mirage called the suit „completely without merit.“

Also Thursday night, Deutsche Bank securities analyst Andrew Zarnett issued a report pointing out two likely affects to the Las Vegas economy if CityCenter is delayed by the financial issues. Locals casino operators would be hurt initially as thousands of construction workers would lose their jobs, or be temporarily furloughed; and the beginning of employment is delayed for thousands of CityCenter hotel and casino workers.

But established Las Vegas Strip casino operators such as Harrah’s, Wynn Resorts and Las Vegas Sands stand to benefit by a delay in bringing the new CityCenter rooms online — especially in light of the recession that has reduced visitation to Las Vegas and hurt all the gaming companies.

„Should CityCenter potentially get postponed due to the above events, we believe that existing Las Vegas operators as well as the overall Strip demand/supply dynamics may stand to benefit,“ he said in a note to investors. „However, this may negatively impact the Las Vegas locals market as CityCenter currently employs over 8,500 construction workers and is expected to employ approximately 12,000 workers to staff CityCenter.“