March 4 (Bloomberg) -- MGM Mirage and Dubai World’s talks with Deutsche Bank AG for a $1.2 billion loan to complete the Las Vegas CityCenter project collapsed after a disagreement over terms, according to five people with knowledge of the matter.

Deutsche Bank was seeking equity and debt stakes in the $11.2 billion development on the Las Vegas Strip in return for the loan, said the people, who spoke on the condition of anonymity. MGM Mirage and Dubai World, which would have merged CityCenter with a neighboring property owned by the bank, are now holding talks with other parties, one of the people said.

MGM Mirage, majority-owned by 91-year-old investor Kirk Kerkorian, fell to its lowest in at least 19 years in U.S. trading today after saying it may breach financial covenants under its senior credit facility this year. Reaching a deal with Frankfurt-based Deutsche Bank would have helped MGM Mirage and its Dubai partner finish the project without spending more of their own cash.

“If the deal is off, MGM Mirage will have to consider other options such as asset sales,” Michael Paladino, an analyst at Fitch Ratings, said in an interview. “Investor sentiment around Las Vegas is at an all-time low so it will be difficult to raise capital in public markets. No asset sales would be off the table for MGM and it’s definitely a buyer’s market.”

Deutsche Bank had considered combining its Cosmopolitan Resort & Casino tower, also under construction on the Las Vegas Strip, with the 67-acre CityCenter development between the Bellagio and Monte Carlo casinos. The project is scheduled to open late this year.

‘Ongoing Talks’

Agreeing to the transaction with Las Vegas-based MGM Mirage may have enabled Deutsche Bank to avoid booking a writedown on Cosmopolitan, which it foreclosed on last year after developer Ian Bruce Eichner defaulted on a $760 million loan. The bank holds about $1.5 billion of Cosmopolitan’s debt, two people with knowledge of the situation said on Feb. 23.

“We are having ongoing talks with our financial partners about our several options,” said MGM Mirage spokesman Alan Feldman. A Deutsche Bank spokesman declined to comment.

MGM Mirage and its 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.

Gambling revenue in Las Vegas, the biggest betting center in the U.S., fell the most on record last year, causing declining sales at MGM Mirage, the owner of 10 casino resorts in the city and the biggest employer in the state of Nevada.

The shares have slumped 84 percent this year and closed today at $2.21 in New York Stock Exchange composite trading, the lowest since at least December 1989.

MGM 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.

To contact the reporters on this story: Jonathan Keehner in New York jkeehner@bloomberg.net.

Last Updated: March 4, 2009 22:26 EST