NEWS
Magna Entertainment losses surpass $575-million
Posted: Wednesday, August 06, 2008 11:17 AM
by Frank Angst
With losses continuing to mount, the future of racetrack owner Magna Entertainment Corporation appears to be in serious doubt without significant changes.
The owner of nine Thoroughbred tracks reported a net loss of $67.7-million for the first six months of 2008. It has accumulated a deficit of $577.8-million since 2005 and reports a working capital deficiency of $151.1-million.
On a Wednesday afternoon conference call, Magna Chairman Frank Stronach talked about changes to the company’s stock plan and even the possible sale of up to 60% of Santa Anita Park as options for cutting the company’s debt.
“Accordingly, the company’s ability to continue as a going concern is in substantial doubt,” Magna reported in its second quarter financial results late Tuesday night. “If the company is unable to repay its obligations when due, or satisfy required covenants in debt agreements, substantially all of the company’s other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements.”
While Magna’s ability to continue has been an issue for some time, the current report documents further, significant problems.
In September, Stronach announced a debt elimination plan that called for the sale of assets. In the current report, however, Magna notes the weakness in the United States real estate market has hurt the demand for the company’s assets, including tracks like Thistledown and Remington Park.
"Although we continue to take steps to implement our debt elimination plan, U.S. real estate and credit markets have continued to demonstrate weakness in 2008 and we do not expect to complete our plan on the originally contemplated time schedule. However, we remain firmly committed to reducing debt and interest expense,” Magna Chief Financial Officer Blake Tohana said. “We closed the sale of Great Lakes Downs in July 2008 and are continuing to pursue other asset sale opportunities."
Because Magna has not been able to sell its properties, the second quarter report notes that the company will seek extensions from existing lenders and additional short-term funds during a difficult credit market.
On June 30, Magna reported $229.8-million of debt due to mature in 12 months. In August, Magna faces an obligation to pay $100-million owed to a Magna International Developments subsidiary for rebuilding Gulfstream Park, as well as payments on $40-million of revolving credit with a Canadian financial institution and a $110-million bridge loan with a Magna International subsidiary.
“The availability of such extensions and additional funds is not assured,” the company reported.
For the quarter, Magna reported a net loss of $21.25-million. Still, Stronach expressed some optimism after success at its flagship tracks in Florida and California as well as improved results at its advance deposit wagering site, XpressBet.com.
"Despite difficult economic conditions in the U.S., our [earnings before interest, taxes, depreciation, and amortization] from continuing operations improved by $1.2-million in the second quarter of 2008 compared to the same period last year. This improvement was primarily due to improved results at Gulfstream Park, Santa Anita Park, and our real estate operations partially offset by disappointing results at the Maryland Jockey Club,” Stronach said. “We are also encouraged by the results at XpressBet, which increased its handle by 21%, and Remington Park, which increased its slot revenues by 17%, both compared to the same quarter last year.
“Notwithstanding this modest improvement in EBITDA for the quarter, we recognize the need for further significant improvement in our operating results as we also focus on dramatically reducing our debt levels."
Frank Angst is a Thoroughbred Times senior writer
