Shares of Magna Entertainment Corp. plummeted by more than 50% on heavier than average volume Sept. 30, prompting more concern for the owner of the site of next month’s Breeders’ Cup World Championships.
MEC’s stock hit a low of $1.50 at one point in the day before rising to $1.75, or a 56.3% drop, at the close of trading on the NASDAQ board, with a volume of more than 218,627 soaring above the three-month daily average of 6,427. MEC's decline was the largest percentage drop of the day, according to the Wall Street Journal.
The fall-off came against trading where the NASDAQ Composite Index rose nearly 5%, rebounding from Sept. 29’s 9.14% drop on the largest single-session point plunge in stock market history.
It’s not clear what precipitated MEC’s downward spiral, though the company’s financial challenges during the last several years are evident, said Tim Rice, co-owner of New Orleans-area brokerage firm Rice Voelker LLC.
“I am not aware of any news events, though it is apparent it must relate to some kind of debt issue,” said Rice, who is also a licensed owner and trainer in Louisiana. “When you see stocks do what this is doing right now, it would seem somebody knows something. It has all the appearances of being a death watch.”
MEC posted annual losses of more than $520 million from 2002-2007, and lost an additional $67.7 million through the first half of the year, according to financial reports. The company also reported in August it had nearly $230 million in debt due by next June, including a $40-million senior credit facility held by a subsidiary of the Bank of Montreal, which is now scheduled to mature by Oct. 15.
The maturity date of that loan, which has been extended more than six times this year, is guaranteed in part by certain assets of Santa Anita Park, the host track of the Breeders’ Cup.
Rice, who says he no longer owns any shares of MEC, said that while he feels chairman and founder Frank Stronach is ultimately responsible for the financial condition of the company, he thinks the multiple Eclipse Award-winning horseman would do whatever he could to avoid an event such as bankruptcy reorganization.
“I would say there are revenue and profit potentials in (the properties MEC owns), that under proper management, might be survivable,” he said. “But the problem now is that because there is so much debt, that even if the tracks survive, is there is going to be anything left for shareholders?
“I just can’t imagine that as much as (Stronach) values his place in the Thoroughbred racing, and the hundreds of millions he has sunk into the breeding and racing industry, that he would suffer the humiliation of seeing this company go under if it was totally unavoidable.”
MEC on July 22 implemented a 1-20 reverse stock split, in part to avoid delisting from the NASDAQ board because the company’s shares traded too long under $1. Translated for comparison purposes, the reverse split puts the $1.75 closing price of Sept. 30 at 8.8 cents, or more than a 76% decline from the 37 cents it recorded July 21.
Other racetrack-related stocks trading on the NASDAQ board realized gains Sept. 30. Churchill Downs Inc. was up 7.79% to close at $48.98, Penn National Gaming Inc. rose 5.27% to $26.57, and MTR Gaming Group Inc. increased 2.15% to $3.32. Canterbury Park Holding Corp. declined 1.4% to $8.73. The parent company of MEC, MI Developments Inc., rose 1.93% to $18.49 in trading on the New York Stock Exchange.