Fifth Third Bank has filed a motion asking a bankruptcy court not to permit Zayat Stables to use the bank’s cash collateral for operating expenses until such time it can provide additional collateral or use other funds for operations.
In the Feb. 23 filing in New Jersey bankruptcy court, attorneys for Fifth Third Bank contended that Zayat’s continued use of the approximately $600,000 in cash collateral "unless and until the debtor can provide adequate protection in the form of additional collateral or a capital infusion sufficient to prevent the diminution of Fifth Third’s cash and the value of its collateral."
In support of its motion, the bank contends that "the debtor’s budget shows that it continues to incur staggering cash losses as the debtor continues to conduct business as usual. If permitted to use Fifth Third’s cash collateral as requested, the risk and burden of the debtor’s continuing operating losses will be borne entirely by Fifth Third through the diminution of its collateral."
The Fifth Third filing is the latest in a series of legal moves in the convoluted case that began when the bank sought to repossess and liquidate the more than 200 horses owned by Zayat in an effort to recover more than $34 million in loans made to the stable operated by Ahmed Zayat. In response to the bank’s lawsuit, Zayat filed for Chapter 11 bankruptcy protection and has said he will propose a reorganization plan that will permit the stable to continue to operate and eventually pay off the bank’s loans.
Zayat contends that it would not be in the best interest of the stable or the bank’s bottom line to sell the horses at a time when the horse industry is mired in an economic slump.
Fifth Third, in its request to not have Zayat use the cash collateral, asks that the court require Zayat to use funds being offered by his brother, Sherif El Zayat, for operating costs should sufficient collateral not be forthcoming. The bank’s filing notes that Zayat’s motion to the court to borrow up to $2.45 million from Sherif El Zayat is scheduled to be heard by the court March 8 and that the request is not opposed by the bank.
The bank’s latest motion came a week after one of Fifth Third’s attorneys informed the bankruptcy judge that they were dropping efforts to have a trustee appointed to operate Zayat Stables.
"After further consultation with our client, we have determined that we will not be filing a motion to appoint a Chapter 11 trustee at this time, though we reserve our right to do so in the future," attorney Jeffrey D. Pol wrote to Judge Donald H. Steckroth.
One of North America’s biggest and most successful racing stables in recent years, Zayat Stables races one of the leading contenders for this year’s Kentucky Derby Presented by Yum! Brands (gr. I). That horse, Eskendereya, soared to the top of many Derby leaders’ lists when the colt ran off to win the Fasig-Tipton Fountain of Youth Stakes (gr. I) in impressive fashion Feb. 20.