Prominent Thoroughbred owner Ahmed Zayat and Fifth Third Bank have reached a tentative agreement to settle their ongoing legal dispute.The settlement will be considered by a bankruptcy court on June 30. If approved, it will go before the bank for final approval on July 15 and would bring to a conclusion a convoluted case that began with the bank's suit in December 2009, seeking to recover more than $34 million in loans to Zayat's Zayat Stables.
In a statement, Zayat said he was "extremely pleased and satisfied" with the agreement between him and the bank.
"Zayat Stables will come out of this in a stronger financial position than ever," Zayat said in the statement, "and it will allow us to devote all of our energies to what is most important: nurturing, developing, and racing the next generation of great American horses."
The settlement outlines a payment plan, similar to the reorganization plan submitted by Zayat and approved by the bankruptcy judge earlier this month, under which the Fifth Third loan would be satisfied by the end of 2014.
Under terms of the settlement, Zayat will make a payment of $5,476,798 on or before June 30 to reduce the principal owed on the loans and to make an accrued interest payment of $623,201 before that date, which is when a hearing is scheduled in New Jersey.
Those payments will come from an escrow account that was boosted by the recent sale of Zayat’s Eskendereya, the probable favorite for the Kentucky Derby Presented by Yum! Brands (gr. I) before he was removed from consideration a week before the classic. He was eventually retired and sold to Jess Jackson’s Stonestreet Stables, with Zayat retaining a breeding interest in the colt once he goes to stud. Documents filed with the bankruptcy court showed Zayat $7,513,500 in stable income in May from the sale of horses.
In 2011, Zayat must make a minimum principal payment of $4 million, with the agreement stipulating that Zayat will pay Fifth Third 40% of proceeds from horses sold (up to $10 million), 50% of proceeds from the sale of horses in excess of $10 million; and 40% of proceeds from claiming races in excess of $495,000.
In 2012 and 2013, Zayat would make annual principal payments of 50% of proceeds from the sale of horses and from claiming race proceeds, to total $3.25 million. In 2014, Zayat would make a payment to cover the balance of the loan before the Dec. 31, 2014 maturity date.
In the original suit, filed by Fifth Third, the bank sought to take possession of the more than 200 horses owned by Zayat that were used for collateral on the loans. Zayat countersued, claiming that equine loan officers at Fifth Third had assured him his loans would be extended. He contended that if he had known that officials at the bank’s main offices were going to reject the extension, he could have sold sufficient horses to meet his obligations.
In an effort to keep the bank from taking possession of and selling the horses, Zayat filed for Chapter 11 bankruptcy protection in New Jersey. He claimed that it was in the best interest of the stable, the creditors, and the bank if he were permitted to continue to operate Zayat Stables.
While the bankruptcy case was going forward, the initial suit filed by Fifth Third was put on hold until earlier this month when a federal judge in Lexington determined that Fifth Third could move forward in an attempt to recover debts from Zayat Stables.
Also earlier this month, Zayat’s reorganization plan was approved by the bankruptcy court, over the objections of Fifth Third’s attorneys.
Zayat, chairman of Egyptian-based Al Ahran Beverages from 1995 to 2007 before the company was sold to Heineken International, has had a major impact on the horse industry since he began buying horses in 2005.