A judge signed an interim order March 13 allowing Magna Entertainment Corp. to borrow $13.4 million to continue its operations during the early stages of the company's bankruptcy reorganization, though final approval for the lending facility won’t be authorized until an April 3 hearing.
U.S. Bankruptcy Judge Mary F. Walrath, who is presiding over MEC’s Chapter 11 proceedings in a Delaware federal court, said in her ruling that “good cause” had been shown for entry of the order.
“An immediate and critical need exists for the debtors to borrow funds and or obtain other financial accommodations,” she wrote, referencing proposed debtor-in-possession financing extended by a subsidiary of MEC’s parent company, MI Developments. “The debtors do not have sufficient available sources of working capital or financing to carry on operation of their businesses without the use of cash collateral and access to financing to the DIP credit facility.”
Walrath also overruled all standing objections to the financing agreement, including one from longtime MID activist shareholder Greenlight Capital, which argued the DIP and other bankruptcy-related transactions between MEC and its controlling entity were in violation of Canadian securities laws.
“The (agreements) have been negotiated in good faith and as arms’ length transactions,” Walrath wrote, saying the court made “no determination” in regard to Greenlight’s assertion that minority shareholder consent was needed with respect to DIP financing.
“This court makes no conclusion of law with respect to any provision of Canadian securities law,” she wrote. Both MEC and MID are headquartered in Canada, and their respective Class-A shares are traded on the Toronto Stock Exchange, though MEC's are scheduled to be delisted April 1.
The ruling noted that more objections could be filed prior to the April 3 hearing. Walrath on March 6, in hearing arguments over traditional “first-day motions,” acknowledged concerns voiced over the relationship of the debtor to MID. In response, the judge immediately limited the initial DIP financing amount to $13.4 million. The DIP facility affiliated with MID proposes a total package of $62.5 million.
MEC filed for Chapter 11 protection March 5. Part of the proposed reorganization plan the company submitted includes a $195-million bid by MID to acquire Golden Gate Fields, Gulfstream Park, and Lone Star Park, as well as other MEC properties such as AmTote International and XpressBet.com. Other racetracks and assets the company holds will be separately marketed.
“The relief requested in the DIP motion is necessary, essential, and appropriate for the continued operation of the debtors' business... (and) will also allow the debtors to effectively market various assets to determine the propriety of the sale thereof,” Walrath wrote in the March 13 ruling. “It is in the best interest of the debtors' estates.”
A budget included in court documents declared MEC’s “cash required for operations” through April 3 is $26 million.