Attorneys for Ahmed Zayat’s Zayat Stables are refuting claims by Fifth Third Bank that the prominent stable violated terms of a cash collateral agreement by withdrawing four horses from a Keeneland sale.
In documents filed April 13 in bankruptcy court in New Jersey, Zayat takes the position that he agreed to enter nine horses in the April 5 Keeneland sale of 2-year-olds in training, but withdrew four of them because it would not make good business sense.
A hearing has been scheduled for Wednesday, April 14, over the bank’s claims Zayat Stables violated terms of an agreement under which the stable was permitted to use cash collateral through May 1.
As part of the bank’s agreement to let the stable use the cash collateral, Zayat provided Fifth Third with a list of horses it intended to sell, with proceeds to be placed in an escrow account. The bank contends the withdrawal of the four horses meant that Zayat violated terms of its agreement with the bank regarding use of the cash collateral.
"The debtor’s unilateral decision not to sell four of the nine listed horses at the Keeneland sale as agreed and as required by the cash collateral order without the consent of Fifth Third is a breach of the cash collateral order warranting the termination of the debtor’s further use of cash collateral," the Fifth Third motion states.
In response, Zayat claims, and includes e-mail correspondence between the two parties as documentation, that it "committed to entering nine horses in the April 5, 2010 Keeneland sale (and to explore the sales of seven additional 2-year-old horses), but would not commit to selling them... The debtor asserts that holding the withdrawn horses was a reasonable and prudent business decision that ultimately will inure to the benefit of the estate’s creditors, including Fifth Third."
With McKathan Bros. as agent, Zayat sold three 2-year-olds at the Keeneland sale, and two others did not meet their reserve prices.
Zayat’s filing noted that three of the horses entered but withdrawn from the sale had "missed several days of training leading up to the Keeneland auction and, therefore, were behind in their maturation. Based on feedback from the debtor’s expert trainers and consignors, those horses would not achieve maximum value... Rather than allow those assets to be lost for less than maximum value, the debtor determined to retain those horses."
The fourth horse withdrawn from the sale, a Songandaprayer colt out of Miraculous Knight, is being retained by Zayat based on an assessment from trainer Todd Pletcher that the individual "has begun to show promise and will be ready to commence a potentially successful racing career soon. The debtor believes that holding and training that colt will create additional value for the enterprise over the near term, similar to the debtor’s experience with breeding and racing Eskenderaya."
Eskenderaya, probable favorite for this year’s Kentucky Derby Presented by Yum! Brands (gr. I), is one of about 200 horses owned by Zayat. Zayat filed for Chapter 11 bankruptcy protection after Fifth Third filed suit claiming Zayat defaulted on a loan totaling more than $34 million. Zayat alleges he could have met certain payment requirements by selling horses, but that he was led to believe by Fifth Third loan officers that his loan would be extended.
Fifth Third had initially opposed Zayat’s request to use the cash collateral, citing the debtor’s "projected continued losses, intended use of the sale proceeds of Fifth Third’s equine collateral to fund those losses, and the debtor’s history of providing inaccurate and misleading information to Fifth Third," according to the latest motions in the case.