A House of Cards
By 1988, just six years after Lundy took over the legendary horse farm, Calumet was broke, and banks in Kentucky had finally wised up and were refusing to lend the farm any more money.
So Lundy went loan shopping in Texas. There he hooked up with Frank Cihak, a horse enthusiast who had recently been appointed vice chairman of Houston's First City National Bank. Cihak loaned Lundy a staggering $50 million.
But as with all things Lundy, not everything was as it appeared to be.
"Now wait a minute," Dominick Dunne said. "Here's a guy, who three years earlier didn't have two nickels to rub together, now he's convincing a Texas banker to loan him millions of dollars on a farm that was mortgaged to the hilt. Something fishy was going on here."
In September 1989, just a year after First City National Bank dropped $50 million in loans on Lundy, Gary Matthews, Calumet's chief financial officer and attorney, sent his boss a six-page memo detailing the failing horse farm's dire financial situation. According to Matthews, Calumet Farm was now more than $100 million in debt and dangerously behind on loan and insurance payments, including payments for the life insurance coverage on the farm's crown jewel — Alydar.
Lundy went back to Cihak for more money. Inexplicably, at least at the time, Cihak restructured Calumet's loan package, taking personal control of it, and lent the troubled farm another $15 million.
A year later Cihak resigned from First City National Bank. At the time, he was under criminal investigation for making more than $400 million in bad loans during his two and a half years at the bank.
On October 25, 1990, the new management team at First City put Lundy on notice. They demanded he make a $15 million loan payment or face foreclosure and the seizure of all of Calumet's assets, including the farm's stable of horses.
Lundy didn't have the money for the payment, but he had a horse worth more than double that amount, at least according to Alydar's life insurance policies.