LAS VEGAS, NV - MGM Mirage and Dubai World are in talks with Deutsche Bank AG for the $1.2 billion loan they need to complete their CityCenter project on the Las Vegas Strip, according to three people with knowledge of the discussions. Deutsche Bank may merge its Cosmopolitan Resort & Casino tower, still under construction, with the CityCenter project, and provide the loan in return for an equity and debt stake in the venture, said the people, who declined to be identified because the talks aren't public.
An accord could let MGM Mirage and its Dubai partner finish the $11.2 billion project without spending more of their own cash. It may enable Deutsche Bank to avoid booking a future writedown on Cosmopolitan, which it foreclosed on last year after developer Ian Bruce Eichner defaulted on a $760 million loan. The bank's current exposure is about $1.5 billion, the people said.
"Deutsche Bank clearly has no desire to own a semi-complete project in Las Vegas," said Robert LaFleur, a Susquehanna Financial Group LLP analyst. "The Cosmopolitan is producing nothing and costing Deutsche Bank a lot of money." He has a negative rating on MGM shares.
The bank's current market capitalization is 9.8 billion euros ($12.5 billion), according to Bloomberg data.
MGM Mirage, the Las Vegas-based casino operator controlled by billionaire Kirk Kerkorian, and the Dubai government-owned partner have struggled to raise the cash needed to finish CityCenter amid near-frozen credit markets and gambling declines. CityCenter includes a casino, hotels, condos and a 500,000-square-foot retail and entertainment district set to open in December.
A Deutsche Bank spokesman declined to comment. MGM Mirage spokesman Gordon Absher also declined to comment.
MGM's new chief executive officer, James Murren, agreed in December to sell the company's Treasure Island casino, postponed the opening of one hotel and canceled a condominium development at CityCenter to save cash.
Real-estate investor Phil Ruffin said today he expected to close his $775 million purchase of Treasure Island on March 31 and wasn't changing any part of the deal announced Dec. 15.
"The deal is still on as we struck it," Ruffin said today in a phone interview. "We're not going to renegotiate anything."
MGM rose 7 cents to $4.27 at 4 p.m. in New York Stock Exchange composite trading. The shares have fallen 69 percent this year.
Ruffin Acquisition LLC will pay $500 million in cash and $275 million in secured notes financed by MGM Mirage for the property on the Las Vegas Strip, Ruffin reiterated today.
"It's a $2.7 billion property we're buying for $775 million, that's how we're looking at it," said Ruffin, who sold the New Frontier casino to Israeli investors for $1.2 billion in 2007. "To build a new property costs about $1 million a room, counting everything."
Las Vegas Strip gambling revenue fell the most on record last year. MGM's Murren said in a Jan. 8 interview he will consider further asset sales as he overhauls the company's balance sheet to "dramatically" reduce debt.
Source: Bloomberg.com