Magna Entertainment Corp. (“Magna”), one of the largest owner/operators of horse racetracks in the United States, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware on March 5, 2009. As reflected in the Affidavit in Support of Magna’s First Day Motions, besides operating racetracks, Magna provides simulcast “live racing content to the inter-track, off-track betting and account-wagering markets.” Magna also owns horse boarding and training centers.
Magna’s racetracks include:
- Santa Anita Park
- Gulfstream Park
- Remington Park
- Golden Gate Fields
- Portland Meadows
- Lone Star Park at Grand Prairie
- Laural Park
- Magna Racino
- The Meadows
Magna’s prepetition secured loans total approximately $500 million. In addition to its secured financing, Magna has unsecured notes totaling $225 million and trade debt totaling $10 million. Magna’s prepetition secured lenders include PNC Bank, Wells Fargo, Bank of Montreal, SunTrust Bank, among others.
In 2007, Magna’s revenue reached over $617 million with losses of $114 million. However, by 2008, its revenue dropped to $594 million, yet its losses grew to $294 million. Magna attributes several factors to its worsening financial condition, including substantial write-down of assets, increased depreciation and higher interest rate expenses as a result of greater debt service.
Magna’s largest unsecured creditors include:
- Maryland Thoroughbred Horsemen’s Assoc. … $3.8 million
- Aon Reed Stenhouse Inc. … $3.7 million
- Florida Thoroughbred Breeders and Owners … $2.2 million
- Zurich North America … $1.9 million
- RGS/St. Kitts … $1.7 million
- Northern California Off Track Wagering, Inc. … $1.7 million
- State of California Horse Racing Board … $1.4 million
- S. California Offtrack Wagering Inc. … $1.2 million
- Magna International, Inc. … $846,000
- New York Racing Association … $830,000
First Steps in Bankruptcy: Sale of Assets
Days after it filed for bankruptcy, Magna filed its Sale Motion under sections 105, 363 and 365 of the Bankruptcy Code. As is common in this jurisdiction, Magna’s Sale Motion seeks authority to schedule an auction, approve bid procedures and approve the sale of certain assets free and clear of liens. According to Magna’s Sale Motion, Magna’s prepetition debt and negative cash flow require it to sell off assets in order to reorganize. Under a separate motion, Magna seeks postpetition financing that will provide it with the cash necessary to continue operations while it markets its various businesses.
One of Magna’s prepetition lenders, MID Islandi (the “MID Lender”), agreed to provide Magna with over $62 million in debtor-in-possession financing. An affiliate of MID Lender, MI Developments Inc. (the “MID Purchaser”), entered into a purchase agreement with Magna on the same day that it filed for bankruptcy. The MID Purchaser will serve as the stalking horse bidder, or first bidder, that will set the threshold for further bids on Magna’s assets. For a listing of assets included in the purchase agreement, read the Sale Motion at p. 3. (Click here to read another post discussing issues relevant to stalking horse bidders).
Magna proposes in its Sale Motion to establish July 8, 2009 as the deadline to submit bids on its assets. MID Purchaser’s stalking horse bid totals $179,795,000, consisting of $135,629,000 in debt and $44,166,000 in cash. Under the Sale Motion, Magna proposes that subsequent bids must be at least $1,000,000 higher than the stalking horse bid.
This bankruptcy proceeding is before the Honorable Mary F. Walrath, former Chief Judge of the Delaware Bankruptcy Court.