Joining in the parade of objectors to Magna Entertainment Corp’s proposed debtor financing and sale of assets is the unsecured creditors committee, which primarily singled out company chairman Frank Stronach for his role in MEC’s bankruptcy reorganization process.
The court-appointed committee, which represents the thousands of claimants owed money by the bankrupt horse racing company, filed its objection April 1, the same day MEC asked a federal court judge to postpone hearing arguments on the disputed matters in an April 3 hearing.
Characterizing the Chapter 11 bankruptcy proceedings as “overrun with serious conflicts of interest,” the committee in its 30-page objection outlined why it feels current proposals for MEC financing and auctions will only benefit the company and affiliates.
“At bottom, the motions are an attempt by the debtors to set these cases on a course that principally benefits only insiders, who forced the debtors into the position they are currently in,” the objection claims.
Those alleged “insiders,” which the committee claims include Stronach, MEC’s founding chairman and current chief executive officer, are “now poised to cherry-pick the debtors' assets on an accelerated schedule, in a highly-challenging environment, with limited competition or none at all,” the objection continued.
The unsecured creditors committee is headed by: Bank of New York, which holds more than $200 million in subordinate notes issued by MEC; the Florida Thoroughbred Breeders’ and Owners’ Association; GLG Partners; the Jockeys' Guild; Madison Partners; the New York Racing Association; and Sunrise Partners. It is estimated there are more than 10,000 individual creditors in the bankruptcy.
Stronach, the committee claims, “wears the hat of almost every conceivable party-in-interest in these cases,” asserting he and family members are the controlling shareholder of MEC through parent company MI Developments. MID, which Stronach also chairs, in recent years has, according to committee calculations, extended $481 million in financing to MEC; proposed $62.5 million in debtor-in-possession financing to MEC; and submitted a $195-million “stalking horse” bid to potentially acquire certain assets such as Golden Gate Fields, Gulfstream Park, and Lone Star Park.
“The multiple roles that Mr. Stronach and the entities he controls play in these cases -- management, equity, DIP facility lender, purported prepetition lender and stalking horse bidder -- render it impossible for the debtors, as presently constituted, to meet the heightened standard necessary for approval of these transactions,” the objection claims.
The committee, among other requests, asks the court: to appoint an independent examiner to oversee restructuring plans, not approve the debtor financing as currently offered by MI Developments, and extend the bidding period for the company’s 10 racetracks and other assets. Proposed bidding deadlines include April 27, when parties must make their intentions known to MEC, and July 8, when final bids must be submitted.
Stronach, in a March interview with The Blood-Horse said he thinks "people are slowly starting to realize that my heart is in the right place," and implored the "racing community" to support him in his endeavors. MEC in earlier court filings said it believes a public auction governed by its bidding procedures will "maximize the sale proceeds received by the estate, which is the paramount goal" and will allow for a "controlled, fair, and open" process.
Among others who have filed objections to the sale and/or financing motions include Churchill Downs Inc., which seeks to protect its interest in TrackNet Media Group and HRTV; lien-holding banks, which are collectively owed more than $115 million by MEC; and the state of Maryland and city of Baltimore, which seek protection for the Preakness Stakes (gr. I) .
In an April 1 filing, MEC submitted an updated agenda for a scheduled April 3 hearing in which it requests motions involving debtor financing and the auction processes be continued to a later date. MEC said it expects to reach unspecified agreements in the interim and will request a new date for final hearings at that time.