Friday, February 27, 2009
Magna in Default on Maryland Loans
Magna Entertainment, the company that operates Frank Stronach's race track empire, announced late Friday that it is in default on its loans from PNC Bank to the Maryland Jockey Club, Pimlico and Laurel. In addition, Magna also disclosed that it has notified Wells Fargo Bank and the Bank of Montreal that it is in default on their loans as well.
While, according to the Magna Entertainment press release, none of the affected lenders have as yet commenced legal action to secure their claims, the lenders have reserved their right to do so at any time. This means that the choice of whether, and where, to enter bankruptcy may no longer be for Stronach to make. In the words of the old Tennessee Ernie Ford song, every day Magna is another day older and deeper in debt. It can't be long now.
The ultimate parent company of the Stronach conglomerate, auto parts supplier Magna International, recently reported a loss of $148 million for 2008. Losses at the peak of Stronach's pyramid scheme will undoubtedly threaten the financial viability of all the other Magna entities, including Magna Entertainment and its principal creditor, MI Developments.
In the face of the deteriorating financial situation, Magna Entertainment has lost three of its Directors, via resignations, since the start of the year. Given the vacancies on its Board and audit committee, the company is no longer in compliance with Toronto Stock Exchange listing requirements, and given the persistence of its stock at miniscule levels -- it closed at 36 cents a share today, equal to 1.8 cents per share prior to last year's reverse stock split -- it's also not in compliance with NASDAQ listing rules. Expect to see MECA on the Pink Sheets, where penny stocks are offered, any day now.Today's press release, which certainly won't help the stock price, was issued at 6:30 pm, well after the markets closed. That may be a sign that we'll see a bankruptcy filing before the markets open on Monday.
Stronach, who's mismanaged Magna Entertainment to where it is today -- helped along by the wilful ignorance of his hand-picked Directors -- did take a pay cut in 2008. He was paid a mere $10 million by parent company Magna International, compared to $40 million in salary and bonuses and another $27 million from the exercise of stock options in 2007. Poor Frank, it'll be hard to maintain that lifestyle on a mere $10 million a year, especially while spending all that time facing angry creditors.