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Skip Dickstein

Eskendereya to Be Sold Under Zayat Plan

Bankruptcy reorganization plan projects all creditors will be paid in full.

Zayat Stables has agreed to sell all of grade I winner and probable Kentucky Derby favorite Eskendereya this year under a bankruptcy reorganization plan that projects all creditors will be paid in full by the end of 2014.

As part of the voluminous reorganization plan filed in New Jersey federal bankruptcy court April 16, Zayat Stables and its managing member and officer, Ahmed Zayat, project various income and expense scenarios under which creditors will be paid.

The documents project Zayat will have income from the sale of horses of $16.8 million, $15.2 million, $10 million, $11 million, and $11 million in 2010, 2011, 2012, 2013, and 2014, respectively.

"The projections assume that the debtor will sell a sufficient number of horses, including 100% of Eskendereya in 2010...A non-refundable deposit of $2 million is assumed to be received in September 2010 from the sale of Eskendereya, with the remaining Eskendereya proceeds assumed to be received in December 2010."

The projections do not place a value on Eskendereya (Giant's Causeway --Aldebaran Light,  by Seattle Slew), the winner of the Wood Memorial (gr. I) and Fasig-Tipton Fountain of Youth Stakes (gr. II) who is likely to be favored in the May 1 Kentucky Derby Presented by Yum! Brands (gr. I) at Churchill Downs.

Bred in Kentucky by Sanford Robertson and purchased by Zayat as a yearling for $250,000, Eskendereya has earned $725,700.

Zayat filed for bankruptcy protection earlier this year after Fifth Third Bank filed suit seeking payment on loans totaling more than $34 million. Zayat claimed bank lenders promised and then withdrew assurances that his loan portfolio would be extended; otherwise he would have sold a sufficient number of horses to satisfy outstanding loan obligations. The bankruptcy filing was designed to ward off efforts by Fifth Third to have the Zayat horses sold to satisfy the loans.

One of North America’s leading owners since being established in 2005, Zayat Stables owns more than 200 horses. Under the stable’s operational model, Zayat purchases horses at yearling and 2-year-old sales. Based on their racetrack performance, the horses are then sold and/or retired to stud. Zayat’s two top runners of 2009—Derby runner-up Pioneerof the Nile  and speedball Zensationalwere retired to stud, with Zayat retaining substantial interests. Both horses stand in Kentucky—Pioneerof the Nile at Vinery and Zensational at Hill 'n' Dale Farms.

In addition to Fifth Third, which is now owed $33.8 million, according to the reorganization, Zayat’s other major creditor is Keeneland, which is owed $2.4 million on horses bought from the Lexington sale company.

According to the court documents, Zayat Stables had a net loss of nearly $8.8 million in 2009, an improvement over the $20.6 million net loss in 2008.

The reorganization projects that from an estimated beginning date of June 10, 2010, Zayat Stables will have racing income based on the following estimates: 20% of its hoses will win and 30% will place second or third; the projections estimate 2010 average purse size of $38,500, increasing by 3% annually thereafter. "In addition, 2010 assumes large purse wins of $2 million and 2011-2014 assumes large purse winnings of $2.5 million annually," the documents state.

Other income projections for Zayat Stables from 2010-2014 include an increase in stud fee income of $65,000 in 2010 to $2.1 million, $4 million, $4.9 million, and $4.9 million, respectively.

The Zayat reorganization plan must be approved by the creditors committee and bankruptcy court before it is implemented. Should those approvals not be forthcoming, the bankruptcy court would consider converting the Chapter 11 bankruptcy under which Zayat is currently operating to a Chapter 7 bankruptcy, under which assets would be liquidated.

In the reorganization filing, Zayat notes that "creditors will receive a better recovery through the distributions contemplated by the (reorganization) plan because the continued operation of the debtor as a going concern rather than a forced liquidation will allow realization of more value for the debtor’s assets."

The filing also notes that the assumptions and projections are, "only estimates and are necessarily speculative in nature. It can be expected that some or all of the assumptions in the projections will not be realized and that actual results will vary from the projections."