Las Vegas: The Dubai developer building an USD 8.6 billion complex on the Las Vegas Strip with casino company MGM Mirage Inc. is suing MGM Mirage because it’s worried about the project’s viability.
Dubai 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 USD 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, which the company touts as the most expensive private commercial development in U.S. history, is MGM Mirage’s top priority.
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.
Dalton said the state-owned company „had no choice“ but to file suit.
Dubai World owns a 50 percent stake in the casino, hotel, retail and residential CityCenter development and controls about 9.5 percent 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.
„If MGM can’t manage its bank debt, how is MGM going to make more equity contributions?“ Cohen said. „Maybe the answer is, well, that gives Dubai World leverage, and they want to control much more than half of this joint venture when it’s all over.“
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.
„Our concern is for the long term health of the project,“ he said. „We want to see some certainty (from MGM) before we continue with our obligations.“
Cohen said the lawsuit makes it more difficult for MGM Mirage to refinance its debt.
„When you file a lawsuit that charges mismanagement and a breach of fiduciary duty, how do you have a refinancing discussion with that kind of talk?“ Cohen said Monday.
A spokesman for MGM Mirage did not immediately respond to a request for comment.
Shares of MGM Mirage were down 16 cents, or 5.1 percent, to USD 2.95 in aftermarket trading after closing Tuesday at USD 3.11, up 6 cents or nearly 2 percent.
Murren told investors last week that MGM Mirage’s relationship with Dubai World was „outstanding.“
Analysts have questioned the project’s potential when the U.S. economy is under severe strain.
„We believe that the completion of CityCenter, one of the world’s largest and most expensive buildings, is coming on stream at precisely the wrong time for MGM, and in the wrong place,“ Citi analyst Anil Daswani said in a research note issued late Sunday.
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 USD 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 USD 1.58 billion in 2007.