Andrew Peacock's collapsing MFS house of cards

First it was Centro - our second biggest shopping centre company.

Now, the pain has spread to the hotel sector where MFS, Australia's second biggest hotel company with 15,000 beds in its Stella business, has seen its shares fall by 69% today.

After a two day suspension, MFS resumed in the morning from its last traded price of $3.18 and plunged to a low of 71c in massive trade of 115 million shares or 24% of the total capital. It finished $2.19 lower at 99c as more than $1 billion of value was wiped out.

Today's 13-page presentation on the proposed demerger of the Stella hotel business from the financial planning business was what triggered the collapse, primarily because it included plans for a $550 million capital raising by Stella, which owns Harvey World Travel, Pepper's Retreats, Gulliver's Travel and even Christopher Skase's old trophy asset, the Port Douglas Sheraton Mirage.

You don't put your hand out for that sort of money in the middle of a credit crunch unless there is no alternative or someone is forcing it on you.

Alan Kohler has an excellent rundown on how the presentation unfolded on Business Spectator this afternoon.

Battling Swiss banking giant UBS has an $800 million loan secured against the Stella assets. Are they pulling the strings here?

It is the complexity of the structure and the various inter-related investments that is exacerbating the pain.

Units in the MFS Leisure and Living Trust plunged 28c to 40c today. That's another $50 million in value destroyed and casts doubt over whether the Trust can finance the $25 million expansion of its Melbourne Aquarium which is currently underway and explained in this recent presentation.

Trophy ski-field assets such as Mt Hotham and Falls Creek are also expected to be hard hit in the coming downturn.

MFS also owns a sizable stake in HFA Holdings, a global hedge fund which manages $9 billion - the majority of which has been sourced by MFS. Shares in HFA today dived 15c to an 18-month low of $1.30.

When the value of your investment in associated funds start to collapse and future management fees dry up, the whole empire can start to teeter.

MFS also raised $210 million through an investment note priced at $104 last March. This debt instrument today plunged $23.95 to $74, wiping away another $50 million of value because of the rising default risk.

It is not as if we haven't been warning about MFS. Read the Crikey account of our exchanges with the board, led by Andrew Peacock, at the recent MFS AGM from November 6 last year.

And listen to this audio file of our debate with CEO Michael King at the AGM about the relationship between MFS and UBS and that $800 million debt.

The loan is at a reasonably low interest rate and is not formally due for another five years, but UBS is struggling globally and is cracking the whip against clients like MFS, which might explain why the company announced its desperate $550 million capital.

I reckon this is going to get a whole lot worse because Australia as a whole simply has too much debt. As one investment banker said in an email today: "The infrastructure funds are next - highly leveraged and capitalised interest".

I've previously warned about ABC Learning on the Mayne Report and another company to keep an eye on is Macquarie Media - which loaded up with far too much debt when swallowing Southern Cross Broadcasting's TV assets last year.

Then, of course, there is the Allco group - another of the unfortunately long line of dogs coming out of the UBS stable, which also produced the crazy RAMS float last year.

For complexity, Allco makes MFS look simple. Shares in Allco Finance Group stabilised today but the one to watch carries the ASX code AHUG and has plunged from $100 to close to $60 in the past few months.

Finally, listen to this interview today about the markets, Centro and MFS with incoming Senator Nick Xenophon who is guest hosting on Adelaide radio station 5AA.