Updated from 9:57 a.m. EDT

Troubled mall developer

Mills Corp.

(MLS)

was expected to take drastic action on its dividend. It lived up to those expectations Wednesday.

Mills, which is facing an

SEC

investigation and numerous shareholder lawsuits related to its ongoing financial restatements, said it would cut the first-quarter dividend by 60% to 25 cents.

The company also announced new agreements with its lenders to free up some cash in the short term.

The real details on the dividend were contained not in the news release, but in Mills' 8-K filing with the SEC Wednesday.

A Mills representative explained that the second-quarter dividend (which will actually be paid in the third quarter) will equal 30 cents at most. This dividend is basically at the mercy of the company's lenders and hinges upon a possible merger or sale of the company -- which Mills has been exploring since February.

There will be no further dividend payments. So the gist is, at most, owners of the common stock will get two dividend payments this year, amounting to a maximum of 55 cents.

Mills shares surged 15.1% to close at $30.33 Wednesday. The 55-cent dividend yield is now a puny 1.8%, and the run-up in price hints that Mills is now being eyed purely for its takeout potential.

Mills also said it has secured waivers of default from its banks since the company has failed to file its 10-K. The move frees up room on its line of credit but also provides security interests in many of its properties to its lenders. Under the new agreement, the lenders will have greater control over the sale of Mills properties.

"The company is currently in the process of obtaining waivers and standstill agreements with respect to defaults under construction loans at Pittsburgh Mills, Cincinnati Mills, St. Louis Mills and Discover Mills. The company will not draw on its line of credit at this time, but will fund its business through the net proceeds of property level refinancings," Mills said.

Mills also said that JP Morgan provided a $625 million mortgage for Sawgrass Mills to replace $286 million in mortgage and $74 million in mezzanine financing. The new two-year mortgage has an interest rate of Libor plus 1.68%. The mortgage has three one-year extension options subject to certain conditions.

Additionally, Mills will retain the right to obtain more mezzanine financing secured by the asset. The transaction closed on April 6, 2006. The company expects to generate about $246 million in incremental proceeds from this transaction.

"The refinancing of Sawgrass Mills, together with our planned refinancing of Madrid Xanadu and Vaughan Mills, as well as our renewed access to our line of credit should provide the company with the liquidity needed to continue pursuing our core development projects and prudently investing in our existing assets." said Chairman and CEO, Lawrence C. Siegel, in a statement. "This financial flexibility should also strengthen the company's position with respect to its previously announced exploration of strategic alternatives."