Monday, March 30, 2009

MGM Doubles Down
MGM made a $200 million debt payment Friday on its high profile $8.6 billion City Center Development located in the heart of the Las Vegas Strip. MGM made the payment because its co-investor in the project, Dubai World, refused to make the payment claiming cost overruns. MGM is taking a huge risk with the payment:

MGM Mirage's decision to cover the entire payment itself raises new questions about how it will meet payments on its $13.5 billion in debt. The decision to make the entire payment was made with approval from MGM Mirage's lenders, the company said.

The casino operator, controlled by billionaire Kirk Kerkorian, narrowly avoided defaulting on bank loans earlier this month. Its auditors warned of "substantial doubt about the company's ability to continue as a going concern" in a regulatory filing earlier this month.

The gambling company's lenders recently agreed to a waiver on MGM Mirage's loan covenants, giving the company until May 15 to resolve its cash flow and debt issues.

MGM had little choice but to make the payment. Without the payment construction on the massive development (the largest in the US, I believe) would have stopped. The impact on Vegas' economy if development on City Center stopped, according to the WSJ article (linked to above) would be "devastating." MGM may have bought some time, but the clock is ticking and time is running short.

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