Last fall, the reclusive billionaire Kirk Kerkorian’s decision to sell his stake in the Ford Motor Co. was widely viewed as just another symptom of Detroit’s long decline. However, it turns out that Kerkorian was giving up on Ford because his own economic empire was under siege.
Kerkorian isn’t going to have to apply for the expanded unemployment benefits being offered by the Obama administration but the core of holdings, MGM Mirage is now under siege. The company’s shares have lost 50% of their value in a matter of days, MGM’s credit rating has been slashed, major lenders have halted the supply of money for big projects and rumors are circulating the MGM is now on a glide path into bankruptcy court.
“The downgrade reflects MGM’s draw in the context of the company’s strained liquidity position and the continued expected deterioration of Las Vegas operating trends.” Fitch rating service noted after MGM announced that it borrowed the remaining $842 million left from a $4.5 billion senior revolving portion of its $7 billion credit facility. “Fitch previously noted that it believes that MGM is unlikely to remain in compliance with its 7.5 times (x) leverage covenant this year, so fully drawing on the revolver increases the likelihood of a near-term covenant breach,” the report noted.
A breached covenant means lenders can call MGM’s outstanding notes and loans, forcing the company into bankruptcy.