MEC OK'd for Additional Interim Funding

Magna Entertainment Corp. received an additional $2.5 million in interim financing to continue its operations through the initial stages of its bankruptcy reorganization April 3 after apparent agreements were reached with some of its objecting creditors.

MI Developments, which is the controlling shareholder in MEC, worked out unspecified agreements in exchange for concessions in the terms of both its $64.5-million debtor-in-possession (DIP) financing plan and its $195-million “stalking horse” bid to acquire certain racetracks and other assets, according to filings in both the U.S. Bankruptcy Court in Delaware and the Securities and Exchange Commission.

A corresponding court order was entered April 3. The court previously approved $13.4 million in DIP financing from MID to fund the operations of MEC, which filed for Chapter 11 protection March 5.

In exchange for approval of the additional interim financing and a continuance of corresponding motions to April 20, MID said either it or MEC could terminate the stalking horse bid if the Ontario Securities Commission determined that approval of minority shareholders is required for it and other transactions. But neither company can terminate the agreement if MID calls a meeting to seek approval of the agreement from its minority shareholders.

One of the objectors, Greenlight Capital, recently filed a complaint about MID’s involvement in MEC’s bankruptcy reorganization with the Ontario Securities Commission, which is a parallel regulatory authority in Canada to the SEC. In the complaint, Greenlight Capital claims both the stalking horse bid and proposed DIP financing agreement are in violation of Ontario securities law. Both MID and MEC are also incorporated in Canada and trade shares of their stock there.

Greenlight Capital is an activist shareholder of MID that in the past has unsuccessfully sued MID and chairman Frank Stronach in Canadian court for shareholder oppression.

The court order signed April 3 said the additional interim financing was granted “in order to afford (objecting) parties ... sufficient time to attempt to consensually resolve their outstanding issues." In addition to Greenlight Capital, the objectors cited in the order included MEC lender SunTrust Bank, the state of Maryland, off-shore rebate shop Racing & Gaming Services, and the unsecured creditors committee.

The latter entity, which represents more than 10,000 creditors in the bankruptcy, recently filed a lengthy objection to the reorganization plans.

Also in the April 3 hearing held in the Delaware bankruptcy court, MEC agreed to hire a restructuring officer and add new directors to its board, according to Bloomberg News. Attorney Brian Rosen said the officer would ensure open bidding on assets offered through court auction.

Rosen said an unspecified number of members would also be added to the MEC board, Bloomberg News added. MEC has seen the departure of three directors since the first of the year.