Tough times for Kerkorian

Here's how bad things have gotten: The Bev Hills investor - still a billionaire but less of one after the past few weeks - has not only lost a few hundred million dollars in Ford, but also the collateral he used to support that investment. The collateral in question is his stake in MGM Mirage, whose debt was just downgraded to junk status by Fitch Ratings. The stock hit a 52-week low today of $9.75; its 52-week high is $95.66. With Kerkorian holding 54 percent of the company’s shares, you can see the problem. From MarketBeat:

The news resulted in a flurry of activity in the options market, where a bevy of puts (options to sell a stock at a later date at a given price) were heavily traded. “There were definitely more buyers of puts,” says Andrew Wilkinson, senior market strategist at Interactive Brokers. “The Fitch downgrade did not help.”

MGM Mirage has been a disaster because fewer people are going to Vegas. Hotel room rates have declined 7.7 percent year to date, visitation is off 1.5 percent, and we don’t have to tell you about all the foreclosures. The disaster is made worse because MGM Mirage has a huge investment in the $9 billion CityCenter project - and CityCenter faces a $700 million shortfall. There will be debt refinancing (a development like this is too big to fail), but that means higher interest costs. Thing is, residential sales have been completed on only 54 per cent of the CityCenter units. Hey buddy, I can sell you a condo, cheap. From the FT:

In the past two weeks, the 91-year-old Mr Kerkorian, who flew gamblers to Vegas after the second world war and was central to the development of the Strip as a gambling destination, appeared to be risking his 54 per cent stake in MGM Mirage to prop up the ailing Ford. He used two tranches of 50m MGM Mirage shares – two-thirds of his overall stake in MGM Mirage – to underpin a $600m credit line with Bank of America, which was used to buy up his stake in Ford, amounting to 36 per cent of MGM Mirage’s outstanding shares.