Magna Files for Chapter 11 Bankruptcy

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Magna Entertainment Corp. announced March 5 it filed for Chapter 11 bankruptcy protection, and also unveiled a plan to sell many of its assets, including Gulfstream Park in Florida, Golden Gate Fields in California, and Lone Star Park in Texas.

The reorganization plan was filed in United States Bankruptcy Court for the District of Delaware. MEC is seeking recognition of the Chapter 11 proceedings from the Ontario Superior Court of Justice in Canada.

MEC, in a lengthy release, said its “day-to-day operations will continue uninterrupted throughout the Chapter 11 process while it undertakes to sell its assets and implement a reorganization” of the company. MEC said it has sought emergency relief to “ensure continued payment of employee wages and benefits and horsemen winnings, and its ability to honor existing customer programs.”

It was announced March 4 that the Thoroughbred Owners of California assumed control of payment of funds at Santa Anita Park, which isn’t among the assets MEC plans to sell, according to the release. Also, MEC noted its advance deposit wagering entity, XpressBet.com, is not among the MEC subsidiaries that filed for Chapter 11 protection.

The bankruptcy filing has been expected for months, if not longer. With each passing quarterly earnings report, MEC continued to say its debt was mounting into the hundreds of millions of dollars.

“Simply put, MEC has far too much debt and interest expense,” MEC chairman Frank Stronach said in a statement accompanying the release. “MEC has previously pursued numerous out-of-court restructuring alternatives but has been unable to complete a comprehensive restructuring to date due, in part, to the current economic recession, severe downturn in the U.S. real estate market, and global credit crisis.

“This is a voluntary filing intended to utilize a Chapter 11 process that will allow us to continue to operate the business uninterrupted while we implement reorganization in a court-supervised environment. We expect that all employees, customers, and horsemen will continue to be paid in the normal course along with all post-petition vendor obligations.”

MEC said it has arranged a six-month secured debtor-in-possession financing facility in the amount of $62.5 million from a subsidiary of MI Developments, its largest secured creditor and controlling shareholder. MEC said it will use the proceeds from the DIP financing to fund operations during Chapter 11 proceedings.

The court must approve the plan, and if it does, the financing will enable MEC to continue to satisfy obligations associated with the ongoing operation of its business—payment of wages and benefits, purses for horsemen, customer winnings, and post-petition obligations to vendors. The DIP financing will be secured by liens on almost all MEC assets, as well as capital stock.

MEC earlier hired Miller Buckfire & Co. as an adviser and investment banker to market its properties. In the March 5 release, MEC said it has entered into an agreement with MID to sell its interests associated with Gulfstream and the related Village at Gulfstream Park development; Golden Gate; Palm Meadows Training Center in Florida; Lone Star Park in Texas; AmTote, its tote subsidiary; XpressBet.com; and a “holdback” note associated with the sale of The Meadows Racing & Casino in western Pennsylvania. MEC, under a five-year deal, oversees racing operations at The Meadows, a harness track with slot machines.

The agreement with MID is being called “the stalking horse bid.”

The aggregate offer price for the assets is $195 million and is payable in the form of $44 million cash, assumption of a $15-million capital lease by MID, and a $136-million credit bid of MEC’s existing indebtedness to MID. Under the agreement, MEC will seek court approval of a process to market the assets and others; MID’s offer may be topped by third parties during the Chapter 11 auction process.

MID will not receive any termination fees if MEC sells any assets to a third party, but may receive reimbursement for its expenses in connection with the stalking horse bid.

Lone Star, which opens for live Thoroughbred racing April 9, issued a statement March 5.

"MEC and the affected subsidiaries are seeking reorganization under Chapter 11 of the federal bankruptcy code to address their current debt situation in such a way as to allow them to emerge from the bankruptcy proceeding stronger and better equipped to respond to future economic challenges," Lone Star president and general manager Drew Shubeck said. "It is important to note that Lone Star Park is not among the parties filing for Chapter 11 bankruptcy protection, and will not be included in the bankruptcy proceeding.

"As a result, none of Lone Star Park’s accounts or assets will be frozen or negatively affected by this filing. Accordingly, there should be no immediate implications for Lone Star Park, our employees, horsemen, vendors, or customers."

The MEC bankruptcy release made no mention of Laurel Park or Pimlico Race Course, the company's two racetracks in Maryland.

In a separate release, the Maryland Jockey Club said live racing will continue at Laurel Park as scheduled on a Wednesday through Saturday schedule until April 11, with simulcasting at Laurel and Pimlico on Sunday, Monday, and Tuesday.

"As far as are guests are concerned there will be no change to the operation," said Maryland Jockey Club president and chief operating officer Tom Chuckas. "The employees will not have to worry about payroll and the horsemen’s purse account is protected. This is a tough time and very unnerving but at the end of the day it will create a more positive environment and a much stronger company."

The Associated Press reported court filings claim MEC has between $500 million and $1 billion in liabilities and more than $1 billion in assets. It also has between 10,000 and 25,000 creditors, including MI Developments, which is owed $372 million.

On its Web site, MEC has listed a series of "Frequently Asked Questions" about the bankruptcy filing. You can find them here.

In another matter, MEC said one of its subsidiaries in Austria has entered into an agreement to sell to a subsidiary of Magna International Inc. about 100 acres of real estate located at Magna International’s European office complex in Austria for about $5.7 million. The transaction is expected to close in the second quarter of 2009.