MEC Maryland Entities in Default on Loan

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Magna Entertainment Corp. has been informed by PNC Bank that it is in default on a loan agreement involving four Maryland entities the company owns.

In a press release issued the evening of Feb. 27, MEC said it had received written notice of the default for “failure to comply with certain financial covenants relating to the financial position and results of operation of MJC and related entities.”

But the release said PNC Bank has chosen not to exercise its rights and remedies under the loan agreement, although it may choose to “at any time in the future without written notice.”

It’s unclear from the release exactly what loan is in default, or what effect, if any, the development may have on the company's Maryland properties, which include Pimlico Race Course and Laurel Park. MEC officials were not available for comment due to the close of business hours.

In its most recent quarterly filing with the Securities and Exchange Commission on Nov. 7, 2008, MEC declared it had three loans with a “U.S. financial institution” for Pimlico Racing Association and two unnamed subsidiaries of the Maryland Jockey Club.

The Pimlico Racing Association loan is a revolving-term facility under which $1.6 million had been borrowed as of Sept. 30, 2008. The loan is scheduled to mature Dec. 1, 2013. The loans for the two subsidiaries of the Maryland Jockey Club are also revolving-term facilities under which $5.9 million and $2.8 million, respectively, had been fully drawn as of Sept. 30, 2008. Those loans are scheduled to mature on Dec. 1, 2013 and June 7, 2017, according to the quarterly filing.

Each of the three loans is guaranteed by unspecified land holdings, buildings, improvements, and “security interests in all other assets of certain affiliates of The Maryland Jockey Club.”

The press release cited Pimlico Racing Association, Inc., Laurel Racing Association Limited Partnership, Laurel Racing Assoc., Inc., and The Maryland Jockey Club of Baltimore City, Inc. as in default.

MEC and its parent company, MI Developments, recently announced they were scrapping a reorganization plan that included a spin-off of the financially-troubled horse racing and gaming company. Included in the complex proposal was a loan from MID that would have paid off debt to PNC Bank, according to SEC filings.

MEC has yet to announce year-end and fourth-quarter earnings results for 2008.

The release also said MEC had notified Wells Fargo Bank and a Canadian chartered bank that it has not met certain financial covenants of loan agreements with those lenders. To date, the lenders “have not exercised their default-related rights under their respective loan agreements,” the release said.

The loan with the Canadian chartered bank, which is believed to be a United States-based subsidiary of Bank of Montreal, is a $40-million credit facility backed by unspecified assets of Golden Gate Fields and Santa Anita Park, according to SEC filings. The maturity date of that loan, which was extended several times in 2008, was accelerated to March 5 when the aforementioned reorganization plan was halted.