Dubai World has announced that its subsidiary Infinity World, which is a joint venture partner with MGM for the development of the CityCenter development project, has filed a lawsuit against MGM in Delaware Chancery Court to protect its rights and the best interests of the CityCenter project.
The lawsuit alleges that MGM’s admissions in its 10-K filed with the SEC on March 17 constitute a breach of the CityCenter joint venture agreement and puts the CityCenter development project at risk. Specifically, and amongst other Risk Factors, MGM stated in its 10-K filing that “There is substantial doubt about our ability to continue as a going concern”.
MGM also said it “cannot provide assurance” that its business would generate sufficient cash flow from operation or that future borrowings would be available to it under its senior credit facility in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs.
In its court filing today, Infinity World asked for a declaratory judgment and other measures that would relieve Infinity World of its obligations under the joint venture agreement resulting from MGM’s breach.
CityCenter is a mixed-use luxury residential, resort and retail complex being developed by MGM on 67 acres between the Bellagio and Monte Carlo resorts on the Las Vegas Strip. It is owned by CityCenter Holdings LLC, a joint venture equally owned by MGM and Infinity World. The complex, scheduled to open in late 2009, has been under construction since 2005.
Dubai World said MGM’s disclosure that it cannot provide assurance that it will be able to meet its future payment obligations to CityCenter has left it no other option but to act to protect its investment and the future of CityCenter. The current path of the project is simply unsustainable given our partner’s financial troubles, it said.
Furthermore, the company said, MGM has mismanaged the CityCenter project, resulting in costs significantly over budget despite downsizing certain of the facilities. This has caused Infinity World to make capital contributions far in excess of the levels originally estimated by MGM.
Essentially it is being asked to pay significantly more and getting less, with only uncertainty about MGM’s future, Dubai World said.
In August 2007, MGM provided an estimate of $7.488 billion to complete CityCenter. MGM has since increased that estimate by approximately $1.3 billion, to $8.8 billion. MGM anticipated a financing package of $5 billion, subsequently revised it to $3 billion, and then ultimately raised only $1.8 billion. Infinity World’s contributions to CityCenter to date have equaled approximately $4.3 billion.
Ultimately, Dubai World continues to believe that the CityCenter project has enormous value and will eventually reap tremendous benefits for the Las Vegas community and its investors. It said it is committed to working closely with MGM and the project lenders to resolve these issues in an orderly way. Ensuring completion of the project on acceptable terms is why Dubai World is taking the actions it is announcing today.
In its 10-K filing with the SEC, MGM stated that it obtained a waiver of financial covenants through May 15, 2009 from its senior lenders. According to loan agreements and the waiver, after that date those lenders reserve the right to declare MGM to be in default. The 10-K stated that if the lenders exercise any or all such rights, MGM or CityCenter may determine to seek relief through a filing under the US Bankruptcy Code. Dubai World does not believe the short term waiver will benefit CityCenter in the long term and is significantly concerned about MGM’s survival.
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