Del. judge allows Magna Entertainment more financing, more time on reorganization plan

By Randall Chase, AP
Wednesday, March 3, 2010

Magna gets more time, money in bankruptcy case

WILMINGTON, Del. — A Delaware bankruptcy judge on Wednesday granted horse-track owner Magna Entertainment Corp. permission to obtain additional financing and more time to complete a Chapter 11 reorganization plan.

Judge Mary Walrath approved Magna’s request for authorization to obtain $7 million in additional financing from a subsidiary of its parent company, MI Developments. MID previously agreed to extend $64.4 million in financing, but Magna said it was facing liquidity issues because of an unexpected decline in horse racing revenues and weather-related race cancellations at Santa Anita Park in California.

Over an objection by PNC Bank, Walrath also extended the time during which Magna has exclusive authority to file a reorganization plan to April 30. A court filing by Magna had automatically extended the previous Jan. 31 deadline pending Wednesday’s hearing.

Working with MID and its committee of unsecured creditors, Magna filed a reorganization plan last month that is contingent upon the settlement of a lawsuit in which the committee accused MID of sham financial transactions leading up to Magna’s bankruptcy filing last year.

PNC Bank, which holds a lien on Magna’s Maryland horse racing assets, argued that Magna should not be given more time because it has failed to provide PNC with information about the often-delayed sale of Maryland Jockey Club assets, which include Laurel Park, Pimlico race track in Baltimore, and the Preakness Stakes, the second jewel in horse racing’s Triple Crown.

The sale, which has been postponed four times, currently is set for March 25.

“We have been locked out of a lot of information in terms of what’s going on with the sale of the Maryland Jockey Club,” PNC attorney Michael Gallerizzo told Walrath, adding that further delays could cause prospective bidders to lose interest in the auction.

Gallerizzo also said there is a lot of “ambiguity” in Magna’s proposed reorganization plan, and that the threat of creditors being presented with an alternative plan could pressure Magna to speedily resolve its bankruptcy case.

“Without pressure on the debtor to move this case forward, we could be here another six months from now,” he said.

But Magna attorney Brian Rosen said the submission of a competing plan could disrupt the settlement between the creditors committee and MID, which is the glue holding Magna’s reorganization plan together and which, in Rosen’s words, “took forever to get to.”

Joshua Brody, an attorney for the committee, also urged Walrath to grant Magna more time for its reorganization plan.

“This is the only plan that can be filed now, because without this settlement, there’s no way to resolve this case,” Brody said.

The settlement involves a lawsuit claiming that Ontario-based MI Developments and its chairman, Frank Stronach, propped up Magna with equity infusions disguised as secured loans to ensure that Stronach retained control of MEC assets.

The lawsuit claimed that Magna fraudulently transferred more than $125 million in loan payments to a subsidiary of MID in the two years leading up to Magna’s Chapter 11 filing. It sought to recharacterize MID’s loan claims as equity interests and to subordinate them to other claims.

In exchange for the lawsuit being dropped, MID has agreed to pay $75 million to holders of allowed general unsecured claims against MEC and its debtor affiliates, except the Maryland Jockey Club. Any distributions to jockey club creditors would come from the sale of its assets.

“We are trying to sell the Maryland tracks,” Rosen assured the judge, adding that current activities related to gambling in Maryland could enhance the value of the Maryland assets.

Rosen did not offer specifics, but suggested outside court that a petition drive to halt plans for a slot machine casino near Arundel Mills Mall could benefit Laurel Park, which also is in Anne Arundel County.

Magna’s proposal to put slots at Laurel Park was rejected last year after it failed to submit the required licensing fee. Supporters of the Laurel Park have said a slots parlor at the mall would devastate the track.

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