Three banks holding liens on racetracks such as Pimlico Race Course, Santa Anita Park, and Golden Gate Fields have filed objections over Magna Entertainment Corp.’s proposed bidding process to sell those racetracks and certain other assets.
PNC Bank, Wells Fargo Bank, and Bank of Montreal, which have active loans with MEC, respectively filed the objections recently in U.S. District Bankruptcy Court in Delaware, where the horse racing company’s Chapter 11 proceedings are being held.
The banks argue the proposed bidding process will fail to bring optimum results because the terms in which MEC is seeking to conduct the proposed auction are either too broad or too confusing.
PNC Bank, which according to court filings is owed an aggregate $12.1 million on three loans extended to MEC, claims the company is seeking not to sell the assets outright, but rather stock, membership, and partnership interests.
“This inconsistency renders the (bidding motion) very confusing,” the PNC objection filed March 26 claims. “The proposed transaction will effectively chill all meaningful bidding and will not result in any meaningful sale since there will be very few, if any, purchasers who would be willing to purchase interests in the debtors as opposed to the specific assets.”
Like PNC Bank, Wells Fargo Bank, which according to court filings is owed $66 million by MEC, also argues the terms under which the company proposes to conduct the bidding are too vague.
“The bidding procedures do not actually require the debtors to consummate a sale pursuant to their terms; as such, the bidding procedures motion merely asks the court to enter an order granting the debtors the unremarkable authority to ‘maybe’ enter into auction if they believe it will be beneficial to the estates,” the objection filed March 27 claims.
Wells Fargo claims the bid process submitted by MEC allows the company, among other things, to modify the procedures at any time, pursue arrangements with bidders outside the auction process, change the date of the auction, reject bids, and withdraw assets from the auction “at any time for any reason.”
“The wide latitude ... will detract otherwise willing bidders from participating in the auction process,” the objection claims. “Because the debtors are free to deal with potential purchasers outside the auction, there is no incentive to participate in the auction itself. Without this incentive, the auction is destined to fail.”
PNC Bank also questions the timing of the auction process, asserting that final sales will not be completed until fall, thus missing the opportunity availed by the Preakness Stakes (gr. I), which will be run on May 16.
“The method selected by the debtors for offering the Pimlico/Preakness assets for sale … will result in a much lower proposed sales price for such assets than would result if the debtors immediately offered (them) for sale along with the revenues to be generated by the Preakness …” the objection claims.
PNC Bank claims it holds liens and security interests in Pimlico Race Course and Laurel Park, as well as the Preakness Stakes name. Wells Fargo claims it has a first lien on Santa Anita Park, and other “capital interests” in the track.
Bank of Montreal, which holds a first lien on Golden Gate Fields, also objected to the submitted bidding procedures in a March 27 filing, echoing some of the arguments of PNC Bank and Wells Fargo Bank. Through a U.S. subsidiary, Bank of Montreal is owed approximately $38 million on a loan that is also guaranteed secondarily by Santa Anita Park.
MEC previously disclosed in court filings it would offer through auction many of its racetracks, including Santa Anita Park, Pimlico Race Course, Laurel Park, Thistledown, Remington Park, Portland Meadows, and Magna Racino. Other assets such as Golden Gate Fields, Gulfstream Park, and Lone Star Park, among others, are being sought by MEC’s controlling shareholder, MI Developments, in a $195-million “stalking horse” bid.
A "stalking horse bid" is a financial term commonly defined as a first offer to purchase a company's assets involved in a bankruptcy proceeding.