Meadows Sale Seems Key to Magna Debt Reduction

Magna Entertainment Corp. reported a slightly smaller net loss for the second quarter of 2006 compared with the same period last year, but indicated a working-capital deficiency of almost $140 million remains a problem.

The net loss for the second quarter of this year was $26.3 million, down from $26.9 million for the April-June period in 2005, according to a financial statement released Aug. 2. Revenue for the second quarter was $184.8 million, up from $168.3 million a year earlier.

MEC chairman Frank Stronach in a statement said net loss is impact by "significant" interest charges, and that the company is "focused on reducing debt in the months ahead." A key part of that equation is the closing of the sale of The Meadows, a Pennsylvania harness track, for $175 million in the fourth quarter of 2006. Another $25 million would be paid at a later date.

Stronach said that payment would make the MEC balance sheet much stronger. Still, the company, in its report on accounting policies, said its "ability to continue as a going a concern is in substantial doubt and is dependent upon the company generating cash flows that are adequate to sustain the operations of the business and maintain its obligations with respect to secured and unsecured creditors, neither of which is assured."

The company made the same statement in its financial report for the first quarter of this year.

MEC expects the sale of The Meadows to Millenium-Oaktree to close, but the track must first be granted a slot-machine license from the Pennsylvania Gaming Control Board. MEC said it expects the $175 million would be paid by the end of October, but there remains "uncertainty as to the timing of the issuance of the gaming license."

The revenue increase was spread around MEC, which owns about 10 racetracks in the United States. Southern operations, which include Remington Park and its slots parlor, experienced a $12.5-million increase in revenue in the second quarter of this year compared with last year. Maryland revenue was up $2.1 million, and California revenue was up $2 million.