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Rating Action:

Moody's assigns CityCenter Holdings a Caa2 CFR and PDR; outlook stable

10 Jan 2011

New York, January 10, 2011 -- Moody's Investors Service today assigned a Caa2 Corporate Family Rating and Probability of Default Rating to CityCenter Holdings, LLC (CityCenter). Moody's also assigned a B2 rating to CityCenter's $500 million guaranteed first lien notes due 2016 and a Caa2 rating to its $600 million guaranteed second lien PIK toggle notes due 2017. CityCenter Finance Corp. is co-issuer of the notes. Proceeds from the first and second lien notes, additional sponsor equity, and a new $900 million guaranteed first lien bank term loan will be used to refinance the company's existing bank credit facility and establish an interest reserve account. The interest reserve will be used to pay interest on the bank term loan and the first lien notes for approximately 18 months. Interest on the second lien notes will accrete and be paid with additional notes (PIK) for the first three interest payments after issuance. Thereafter, at the company's option, interest on the second lien notes can continue to PIK, can be paid in cash, or be paid 50% in cash and 50% PIK. The first lien notes will be secured by a first lien on all of the company's assets on a pari-passu basis with the first lien bank term loan, and will be guaranteed by all subsidiaries. The second lien notes will be secured by a second lien on all of the company's assets and guaranteed by all subsidiaries.

Ratings assigned:

Corporate Family Rating at Caa2

Probability of Default Rating at Caa2

$500 million senior secured first lien notes at B2 (LGD 2, 20%)

$600 million senior secured second lien notes at Caa2 (LGD 4, 58%)

RATINGS RATIONALE

The Caa2 CFR and PDR ratings reflect the significant challenges faced by the company to increase revenues and EBITDA sufficiently within the next 18 months to support interest expense and reduce leverage to a manageable level. These challenges include weak demand for gaming, excess room supply on the Las Vegas Strip, and the need to build customer loyalty for CityCenter as a destination for luxury and high-end gaming customers, and large groups. In this environment, CityCenter will need to take market share from other well-established properties that have greater financial flexibility with which to compete. The ratings also reflect weak liquidity given the absence of a committed revolving credit facility, the risk that further disputes could arise between the project sponsors -- as occurred in early 2009 -- and CityCenter's reliance upon its sponsors for financial support should operations fail to ramp up as anticipated. The ability of the partners to provide such support is not certain given their own financial difficulties. MGM Resorts (rated Caa1) is highly leveraged and faces continuing refinancing risk, and unrated Infinity World (an indirect wholly-owned subsidiary of Dubai World), is reportedly restructuring its existing debt. Positive rating considerations include Moody's opinion that Las Vegas operating trends have reached a bottom and will begin to improve slowly over the next 12-24 months, the operational expertise of MGM Resorts (CityCenter's operating manager), and significant equity investment by the sponsors.

For the next 18 months CityCenter will be reliant upon the interest reserve to service its first lien debt and its second lien debt will PIK. CityCenter's ability to service its debt beginning in mid-2012 is dependent upon a material increase in occupancy, improvement in room rate and gaming revenues, and obtaining operating efficiencies as the property ramps up in order to grow EBITDA to a level to support its annual interest expense requirement. By 2012, assuming a slow but steady improvement in operating conditions and ramp-up of company operations, Moody's estimates CityCenter's debt/EBITDA and EBITDA/interest will approach 8.5 times and 1.2 times, respectively. These calculations exclude about $1.0 billion of unsecured sponsor debt that matures in 2018. Debt/EBITDA and EBITDA/interest would be greater than 13 times and approximately 1.0 time, respectively, if sponsor debt is included.

Pursuant to Moody's Loss Given Default methodology using the standard 50% mean family-level loss given default estimate, the rating of the first lien notes is three notches above the CFR reflecting the adequate asset coverage and $1.6 billion of effectively junior debt in CityCenter's capital structure. This junior debt is comprised of the $600 million second lien notes and approximately $1.0 billion unsecured sponsor subordinated debt.

The rating outlook is stable reflecting Moody's view that operating conditions in Las Vegas will slowly begin to improve, enabling CityCenter to increase EBITDA to a level sufficient to support interest expense by the end of 2012. Given the challenging operating environment, we do not anticipate upward rating momentum in the near term. However, ratings could be considered for an upgrade if CityCenter's recurring EBITDA minus capital expenditures to total interest expense approaches 1.25 times, and if the operating environment in Las Vegas continues to strengthen. The ratings could be downgraded if Moody's comes to believe that CityCenter's recurring EBITDA less capital expenditures to total interest expense will not approach 1.0 time by the first quarter of 2012, or if the Las Vegas operating environment shows signs of further deterioration, or if the probability of default increases for any reason.

The principal methodologies used in this rating were Global Gaming published in December 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

CityCenter Holdings, LLC (the Company) is the owner and operator of CityCenter, a mixed-use development located on the Las Vegas Strip that opened in December 2009. CityCenter includes ARIA Resort & Casino, a 4004-room casino resort; Mandarin Oriental Las Vegas, a 392-room non-gaming hotel with 225 luxury condominium residences; Crystals, a retail mall; Vdara Hotel and Spa, a 1,495-room luxury condominium-hotel; and the Veer Towers which contain 669 luxury condominium residences. CityCenter is a 50/50 joint venture between MGM Resorts International and Dubai World.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns CityCenter Holdings a Caa2 CFR and PDR; outlook stable
No Related Data.
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