Parent company of Magna Entertainment to acquire Maryland tracks, auction canceled

Magna parent to acquire Maryland tracks

WILMINGTON, Del. — A bankruptcy auction of the Laurel Park and Pimlico horse tracks has been called off following a deal in which Magna Entertainment Corp.’s parent company will acquire its Maryland assets, lawyers said Tuesday.

The assets of the Maryland Jockey Club, which include the Preakness, the second race in horse racing’s Triple Crown, had been scheduled to be sold at an auction Thursday, after frequent postponements.

But attorneys for Magna and its committee of unsecured creditors told U.S. Bankruptcy Judge Mary Walrath that, despite their best efforts, they were unable to obtain a lead, or “stalking horse” bid sufficient to ensure a successful auction.

Magna attorney Brian Rosen said that as the result of ongoing talks with Magna parent company MI Developments, attorneys for the creditors committee were able to reach a deal allowing MID to acquire the jockey club assets.

As part of the agreement, Ontario-based MID will increase the amount it will pay unsecured creditors to $89 million from $75 million in exchange for the committee dropping a lawsuit against MID. The committee claimed in the lawsuit that MID and its chairman, Frank Stronach, propped up Magna with equity infusions disguised as secured loans to ensure that Stronach retained control of Magna Entertainment assets. Proceeds from that settlement will be paid to holders of general unsecured claims against Magna Entertainment and its debtor affiliates, except the Maryland Jockey Club.

Also, instead of receiving the first $20 million in proceeds from the sale of the Maryland Jockey Club as called for in Magna’s initial reorganization plan, MID will pay about $13 million to fully satisfy secured claims of PNC Bank, which holds a lien on Magna’s Maryland horse racing assets. MID also will provide about $6 million to fully pay holders of unsecured claims against the jockey club.

MID also will pay the former owners of the tracks $4 million as part of a settlement approved by Walrath on Tuesday in a dispute over future slot machine gambling rights at Laurel Park. The former owners, including Joseph De Francis and his sister, Karin De Francis, also will receive an additional $1 million from MID because it is purchasing the Maryland assets without an auction, and the former owners stood to share in the auction proceeds.

Benjamin Feder, an attorney representing De Francis, expressed disappointment that an auction would not be held, saying De Francis expected to participate in the bidding. The expectation of an auction played a significant role in De Francis deciding to settle the dispute over slot machine rights, he added.

“This is a very significant new development,” Feder told Walrath, adding that De Francis has no intention of backing out of the agreement.

The agreement settles a dispute in which De Francis and the other former track owners argued that they have exclusive rights to future slot machine revenue at Laurel Park under a 2002 agreement in which Magna gained its initial interests in Laurel Park and Pimlico.

Magna claimed that the “alternative gaming rights” granted to a limited liability company that was set up as part of the 2002 agreement don’t exist because it has not been able to obtain a slots license. The company rejected arguments that the former owners had a vested property right preventing any buyer of Laurel Park from operating slot machines there.

Under the settlement agreement, the former track owners gave up asserted claims totaling $810 million and agreed to assign their membership units in the limited liability company to Magna. In return, the were allowed a joint claim of $8 million against Magna Entertainment, which will be treated the same as other general unsecured claims, as well as the $4 million claim against the Maryland Jockey Club.

Russ Silberglied, an attorney for Magna, questioned how Feder could be surprised that there might not be an auction, when the agreement expressly provided for an additional $1 million payment to the former track owners if MID acquired the Maryland assets without an auction.

“We don’t take issue that there was no binding obligation to conduct an auction this Thursday,” Feder conceded. “I’m simply saying it was a significant part of the consideration and the inducement.”