Kerkorian Faces Debt Woes


Withering stock holdings are straining the venerable investor's finances. A lawsuit over a big Las Vegas project adds to the pressure

Move over, Sumner Redstone. Another empire builder, Los Angeles billionaire Kirk Kerkorian, is struggling with a mounting debt load. While Viacom (VIA) Chairman Redstone, 85, earlier this year won bank approval to delay paying off $1.6 billion in debt on his theater and other holdings, 91-year-old Kerkorian faces the daunting prospect of losing his two largest holdings and still having to satisfy $600 million in debt being held by Bank of America (BAC). That will no doubt put a huge strain on his finances, which are said to still be in the billions, but could be dwindling by the moment.

While it's hard to put a figure on the super-secretive Kerkorian's assets, they clearly have shriveled from last year, when he was said to be worth $18 billion. Just his 53.8% stake in casino giant MGM Mirage (MGM) alone has fallen from $9.6 billion a year ago to about $425 million as of Mar. 25. And that holding is under tremendous pressure: On Mar. 23, MGM's partner in an $8.6 billion project in Las Vegas filed suit in a move that could force the project—and perhaps even MGM—into bankruptcy.

Kerkorian's latest trouble comes just months after the billionaire watched as much as $700 million head out the door when he was forced in October to sell much of his stake in Ford (F). The automaker's stock price had tanked scarcely six months after Kerkorian had tendered for 20 million shares at $8.50 apiece. By then, he had built a 6.4% stake in the company. He said in October that he had sold 7 million of those shares for $2.43 apiece, and has since begun to sell off much of the rest. (The stock closed on Mar. 25 at 2.77.)

Stumbling at Delta Petroleum

The decision to buy a stake in the car company was an uncharacteristic misstep for Kerkorian, who had for decades been known for an almost mystical investing acumen as he built and then sold airlines, hotels, and the MGM studio. But it wasn't the only stumble he made in the past 16 months.

The billionaire also holds a 39% stake in Denver oil exploration company Delta Petroleum (DPTR), which in early March said that it needed to raise at least $140 million within the next two months to reduce debt and pay off creditors, and that its auditors had questioned its ability to function as a "going concern." In December 2007, when oil prices were skyrocketing, Kerkorian had spent $684 million to buy 36 million shares that are now worth just under $49 million. A Kerkorian spokesman would not comment to BusinessWeek about the financier's dealings.

Still, Kerkorian's immediate problem is MGM, which is in the midst of a nasty legal battle with Dubai World, a conglomerate owned by the Dubai government with which the casino was building an $8.6 billion hotel, casino, and condo project called CityCenter. On Mar. 23, Dubai World subsidiary Infinity World Development filed suit against MGM, asking to be released from its commitment to provide funds.

Liable for a $600 Million Credit Line

The Dubai World suit cites cost overruns on the project and MGM's admission in its recent financial filings that it doesn't expect to be in compliance with covenants on some of its $13.5 billion in debt by Mar. 31. In its filings, MGM also admits that its debt raises "a substantial doubt about our ability to continue as a going concern." An MGM spokesman says the Dubai World lawsuit, which blames MGM for cost overruns on the project, is "completely without merit." MGM has "available cash to satisfy those obligations" to complete CityCenter, the spokesman added.

Kerkorian is also on the hook for a $600 million line of credit on top of the withering value of his Delta and MGM shares. Just before making his tender offer for the Ford shares last year, Kerkorian got the credit line from Bank of America. And, as the value of his holdings in MGM and Delta has tanked, Kerkorian has been forced to pledge his entire holdings in the two companies as collateral. With both of his largest holdings on the ropes, Kerkorian could face the prospect of seeing both investments evaporate, while still having to repay the $600 million credit line.

Grover is Los Angeles bureau chief for BusinessWeek.

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