NEWS
Magna files for bankruptcy
Posted: Thursday, March 05, 2009 1:47 PM
LAUREL PARK
Matt Goins photo
by Frank Angst
Facing the prospect of defaulting on multiple loans, Magna Entertainment Corp., North America’s top racetrack owner in terms of revenue, filed for bankruptcy Thursday.
The Ontario, Canada-based company filed for relief under Chapter 11 United States bankruptcy code in Delaware. The company expects its day-to-day operations to continue through the bankruptcy proceedings, though Magna will begin selling some assets to repay its debts.
In February, Magna’s parent company, MI Developments Inc., halted a plan that would have infused $125-million into the struggling racetrack company. That decision forced Magna Entertainment into a corner with loans totaling $275-million coming due by March 20.
On February 27, Magna received written notice from lenders that several of its Maryland operations are in default on a loan agreement with PNC Bank, though PNC Bank chose not to exercise its rights and remedies because of the default. On the day it filed for bankruptcy, Magna faced payment on a $40-million credit facility obtained through Wells Fargo Bank, National Association, and a Canadian chartered bank.
Magna owns and operates top winter racing destinations Gulfstream Park and Santa Anita Park. Other Magna tracks include Pimlico Race Course, Laurel Park, Golden Gate Fields, Lone Star Park, Remington Park, Portland Meadows, and Thistledown. Since December 2007, Magna had attempted to alleviate debt by selling Thistledown, and Remington Park. Later, the company said it would consider selling its major tracks, or shares of its major tracks, though it failed to complete any such transactions.
Dennis Mills, chief executive officer of MI Developments, said the parent company still expects a return on Magna’s real estate.
The current balance of MI Developments loans and interest owed by Magna total $372-million, including $171-million under the Gulfstream Park project financing, $23-million in Remington Park financing, a $125-million bridge loan in September 2007, and a $53-million loan in December ’08.
Tim Capps, executive-in-residence at the University of Louisville, said a Magna bankruptcy would be very sobering for the racing industry. Capps, who worked in the Magna family earlier this decade as executive vice president of the Maryland Jockey Club, noted that while operations will continue, the bankruptcy trustee’s top concern is acquiring money to pay creditors. That could put some Magna track properties in danger of purchase for nonracing use.
Capps also noted that the properties might not produce the expected value.
“They [will] be liquidating those places in what is obviously the worst economic environment in our lifetime,” Capps said. “Not only is there no one out there who wants to buy anything, it’s going to be very tough to find resources to do it. There’s no credit.”
For now, tracks will continue operations as usual.
“We are proceeding with business as usual with our daily, off-season simulcasting operations in the Post Time Pavilion and the preparations for our 2009 Thoroughbred spring meet that opens on Thursday, April 9,” said Lone Star President Drew Shubeck.
Oregon law should protect customer accounts at Magna’s advance deposit wagering company, Xpressbet.com.
While operations will continue, obviously many of those operations will be limited in any planning.
“It might take a good while to resolve, and in the meantime those places will be trying to operate in a very difficult economic environment and keep their heads above water while sitting under the bankruptcy umbrella that freezes their assets and doesn’t let them make any moves that aren’t based on whatever the trustee feels it’s appropriate to do," Capps said. "It’s not a pretty scenario.”
In bankruptcy proceedings, the Preakness Stakes (G1), the second leg of the Triple Crown, could be offered as an entity for bidding. Maryland law gives the state the right to match any offer for the race.
Frank Stronach is founder and chairman of Magna Entertainment and its parent, MI Developments. Stronach’s Adena Springs racing operation earned the 2008 Eclipse Award as outstanding owner and has won the award for outstanding breeder as well.
To view a timeline of Magna's acquisitions, click here.
For a chart of Magna's earnings and losses, click here.
Frank Angst is senior staff writer of THOROUGHBRED TIMES
