April 7 (Bloomberg) -- MGM Mirage is in talks with private- equity firm Colony Capital LLC to obtain a secured loan of as much as $750 million to help refinance the casino company’s debt, two people with knowledge of the discussions said yesterday.

Colony may invest in corporate debt secured by a lien on one or more MGM Mirage casinos, said the people, who declined to be named because talks are private. Australian gaming company Crown Ltd. may participate, said the people. An investment in CityCenter, MGM Mirage’s unfinished Las Vegas Strip project with Dubai World, is unlikely, one of the people said.

MGM Mirage, controlled by 91-year-old Kirk Kerkorian, is working to come up with a plan to fund CityCenter by April 13, when lending waivers for the multibillion-dollar development expire. State-owned Dubai World has sued and asked to be relieved of financing obligations, a move that threatens to throw CityCenter into bankruptcy. MGM Mirage has until May 15 to offer a plan to restructure its overall debt.

“We continue to work with our lenders to find a solution to our financial situation,” MGM Mirage spokesman Gordon Absher said yesterday. He wouldn’t discuss specifics of negotiations.

Morgan Stanley Hired

Colony hired Morgan Stanley to advise on the potential debt investment in MGM Mirage, the people said. Spokespeople for Los Angeles-based Colony Capital and Morgan Stanley declined to comment.

MGM Mirage shares fell $1.08, or 20 percent, to $4.45 at 4 p.m. in New York Stock Exchange composite trading. The shares more than doubled in the four sessions before today.

MGM Mirage’s 6 percent notes maturing in October 2009 rose 6 cents to 69.5 cents on the dollar as of 4:02 p.m. New York time, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield fell to 102.38 percent from 129.49 percent.

Las Vegas-based MGM Mirage covered Dubai’s half of a $200 million construction payment on CityCenter last month. The casino company has about $1.05 billion of corporate bonds maturing this year and $1.08 billion due in 2010, according to Bloomberg data.

“They’re going to be scrambling to come up with the money to refinance that debt,” Robert LaFleur, an analyst at Susquehanna Financial Group in Stamford, Connecticut, said in a telephone interview. “Maybe they can renegotiate it, extend the maturities on it, add some collateral to it, to sweeten the deal for existing debt holders, but they’re going to have to come up with some new capital some place.”

A spokesman for billionaire James Packer’s Crown yesterday denied an April 3 report in the Wall Street Journal that the Melbourne-based company, the largest casino operator in Australia, may invest directly in CityCenter.

CityCenter Investment

“Crown is not having any discussions with MGM or Dubai World with respect to any such investment in CityCenter,” the Melbourne-based company said in an Australian stock exchange filing. Crown officials didn’t respond to phone message seeking additional comment.

Dubai World and MGM Mirage are obligated to fund about $800 million more in construction costs before they can access a $1.8 billion loan to complete CityCenter. Located on 67 acres between MGM Mirage’s Bellagio and Monte Carlo resorts, CityCenter is scheduled to open in December and has been under construction since 2005.

MGM Mirage’s restructuring effort coincides with the worst gambling decline on record on the Las Vegas Strip, where MGM Mirage is the largest owner of casino resorts. Casino gambling revenue tumbled 23 percent in February, Nevada’s Gaming Control Board said today.

Michigan, Mississippi

The company separately hired Morgan Stanley to evaluate bids for its casinos in Michigan and Mississippi, a person close to the gaming company said on April 4.

MGM Mirage Chief Executive Officer James Murren said in a Jan. 8 interview he was considering casino sales, in addition to refinancing maturing bonds and buying back some notes trading at discounted levels, as he overhauls the company’s balance sheet.

Murren completed the $775 million sale of the Treasure Island hotel on the Strip to investor Phil Ruffin in March.

In November, MGM Mirage raised $750 million selling bonds with a 15 percent yield, offering investors a lien against the New York New York casino resort in Las Vegas as collateral. The company’s $7 billion senior credit facility and most of its other bonds are unsecured.

Senior lenders led by Bank of America granted MGM Mirage a two-month waiver on March 17 to come up with a debt restructuring plan after auditors questioned the company’s ability to stay in business.

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net

Last Updated: April 7, 2009 17:06 EDT