MEC 2008 Loss Highest in Company History

MEC posted its highest-ever annual loss in its brief history.

One day after reporting Magna Entertainment Corp. would not release an annual report due to its ongoing bankruptcy proceedings, controlling shareholder MI Developments released data showing MEC posted its highest-ever annual loss in its brief history, though it’s not exactly clear what the final tally is.

MID, which released it annual earnings report March 27, said at one point its horse racing subsidiary lost $256.1 million in 2008, but that figure did not include factoring in the amount attributed to the minority ownership. Including effects of the minority interest, the annual loss was pegged at $137.7 million by MID, which controls a 54% share of MEC.

MEC in court documents included in its initial filing for Chapter 11 bankruptcy reorganization March 5 estimated its net loss for 2008 at $294.1 million.

In any case, MEC’s 2008 loss is higher than any previously reported, bettering the $113.8 million the company posted in 2007. MEC was officially launched in 1999, though its genesis is in other entities dating back to 1996.

It was also reported that MEC has a working capital deficiency of $501.5 million at year-end, as well as $453.4 in debt -- excluding loans involved in joint-venture interests, which pushes that liability load to more than $500 million.

MID, which operates as a publicly-traded real estate subsidiary of auto-parts conglomerate Magna International, reported a consolidated loss of $3.2 million in 2008, a swing from a $35.5 million profit for 2007. Magna International, MI Developments, and Magna Entertainment are all chaired by multiple Eclipse Award-winning breeder and owner Frank Stronach.

MID vice chairman and chief executive officer Dennis Mills said in the earnings release the company believes MEC, despite “significant financial challenges,” carries “valuable real estate that is attractive from a development and redevelopment perspective.” MID is seeking to secure control of three racetracks and other assets through a $195-million baseline bid in a pending bankruptcy court auction, and has extended $62.5 million in debtor-in-possession financing to MEC, of which $13.4 million has already been court-approved.

“Our participation in the MEC Chapter 11 process is intended to preserve the value of our secured loans and ultimately create value for MID shareholders,” Mills said in the release. “That is why MID made available to MEC the DIP loan, and entered into an agreement with MEC to be the stalking horse bidder for certain of MEC's assets. At the same time, we are developing a plan to segregate any racing or gaming assets that we may acquire in the MEC Chapter 11 process in a separate and self-sustaining subsidiary.”

If successful, MID previously said it will spin off assets it might acquire through court proceedings into a generically-named entity called RaceCo. Those assets include, in part, Golden Gate Fields, Gulfstream Park, Lone Star Park, totalizator company AmTote International, and its advance deposit wagering entity,

MID’s core real estate business, which includes assets included in Magna International’s vast portfolio of properties, recorded a $132.6-million profit in 2008, a 20% increase from 2007. Total revenue increased for the sixth straight year, up 16% in 2008 to $219.1 million.