For those of you who have followed my ramblings for a while now, this should give you a big laugh. All the way back in October of 2009, I was buying up MGM with two hands, for almost $9 a share.
It seemed an obvious move to me. They were a beaten down, massive company in an industry which has enormous barriers to entry. They had a huge debt load, but as the credit environment eased, they suddenly had the world at their fingertips.
I anticipated that they would start to massively roll over their debt. And they did, within a month of my purchase.
I watched in elation as my investment skyrocketed to $17 a share.
On the way, I took profits, scaled back, and played the dips and troughs. I made an obscene amount of money playing MGM, always long but with strategic sales. I followed their developments.
I stayed in their fucking hotels.
But I realized I was becoming blinded a few months ago. MGM Detroit is still doing fabulously and Macau is on fire, but the rest of company is not.
I think the final straw for me was when they announced they were going to blow up an entire section of their new resort in Las Vegas.
You’ve got to be fucking kidding me!? This is how the company has been managed; they can’t even get proper surveying before blowing $1 billion??
But that’s all why I sold out of the company, not why I’m shorting them.
The reason I’m shorting MGM is their bond repayment schedule.
They owe somewhere between $500 million and $1 billion a year, every year, for the next decade, and still owe several billion dollars after that. Even though they began to restructure back in 2009-2010, they didn’t fucking do it hard enough.
The stupid bastards played it soft, probably thinking they could just half-ass it into the recover. Well guess what chaps? The recovery never came.
Even factoring in the $1 billion they made off the Macau IPO, it’s not enough. That $1 billion isn’t enough to get the company through 2012, on its own. And now with credit freezing up, the ability of MGM and its idiot management to restructure debt is effectively off the table.
Throw in that some major institutional holders are in trouble themselves (think Paulson) and this company is fucked over a spindle.
The company trades down regardless. If we get a slowdown that affects their earnings even slightly, then they’re in bankruptcy before 2014.
I opened a short today for $9.98 a share. It’s under 10% of my holdings, and I’ll add to it as I see fit.
Comments »