CityCenter, an $8 billion Las Vegas project owned by MGM Mirage
Shares of MGM Mirage, a casino operator controlled by billionaire Kirk Kerkorian, sank 17 percent in morning trading.
MGM and state-owned investor Dubai World are likely to struggle to pay $220 million in debt due Friday on CityCenter, said one source.
A bankruptcy filing could come as soon as Friday, said the second source.
CityCenter has hired the law firm Dewey & LeBoeuf to prepare for a possible filing, the sources said.
A spokeswoman for MGM Mirage declined to comment when contacted Thursday night after the Wall Street Journal first reported the potential bankruptcy filing.
Dewey & LeBoeuf also declined to comment.
A bankruptcy filing depends on the outcome of talks between MGM Mirage, Dubai World and lenders, said the sources, who asked to remain anonymous because the talks are private.
Dewey & LeBoeuf partner Martin Bienenstock is the lead counsel on the assignment, the second source said.
Bienenstock, who was the lead lawyer representing Enron Corp in its Chapter 11 bankruptcy protection case, is also currently working with General Motors Corp
BMO Capital Markets analyst Jeffrey Logsdon downgraded MGM Mirage shares to market perform from outperform Friday, citing financial risks.
Dubai World said Monday its Infinity World subsidiary had sued MGM Mirage over the CityCenter development, asking Delaware Chancery Court to find that some financial disclosures in a recent MGM Mirage filing constituted events of default under the joint venture.
CityCenter is a 67-acre residential, resort and retail complex on the Las Vegas Strip. It is slated to open late this year.
Logsdon said the lawsuit could trigger a new crisis in funding the completion of CityCenter. He added that a series of steps including potential asset sales and working out a new bank agreement could take time, clouding prospects for MGM's stock.
MGM shares were down 52 cents to $2.57 on the New York Stock Exchange.
(Additional reporting by Karen Jacobs; editing by John Wallace and Jeffrey Benkoe)