INVESTOR: LET MAGNA GO BANKRUPT
The recent press release announcing Magna Developments (MIM) was scrapping its reorganization plan to help debt-ridden racetrack company Magna Entertainment (MEC) has prompted one of Magna Developments’ largest institutional investors to warn the real estate entity’s board of directors that it was prepared to “vigorously protect” its rights as a shareholder if the board “does not fulfill its fiduciary duties in the weeks ahead.”
Farallon Capital Management, which in October called Magna Entertainment a “financial sinkhole,” filed a letter with the Securities and Exchange Commission on Tuesday that called for the Magna Developments board to foreclose on loans made to the racetrack company if they are not repaid on the accelerated March 20 due date. Half of Magna Entertainment’s $600 million in debt is owed to Magna Developments, and the racetrack company has lost $500 million over the last five years, according to the Farallon letter. Farallon owns 5.5% of the company’s Class A shares. Click here for the Farallon letter to the Magna Developments board.
“Given the (MIM) board’s history of failing to defend MIM’s contractual rights against MEC, we are greatly troubled by the press release’s silence on whether MIM will enforce MEC’s debt obligations when they come due,” the letter states. “Bankruptcy would allow MIM to realize at least some value on its loans to MEC.”
The Farallon letter calls it “folly” that current market conditions justify providing additional financing to Magna Entertainment. “There is no realistic prospect that MEC will ever be financially viable,” it states. “That the (MIM) board has authorized over $300 million in loans in a failed attempt to prop up this equity only highlights the foolishness of the two companies entanglement. There is no possible justification for MIM to deepen that entanglement by lending more money to, or accepting equity in, MEC.”
Frank Stronach is chairman of both Magna Developments and Magna Entertainment.
“If MEC fails to repay the loans as scheduled, MIM should not waste a single day waiting to exercise its rights as a creditor,” the letter states. “Any other course of action would be a dereliction by the (MIM) board of its fiduciary duties. Farallon is watching the board closely. We are prepared to vigorously protect our rights as a shareholder if the board does not fulfill its fiduciary duties in the weeks ahead.”
The Farallon letter comes two weeks after another unhappy institutional shareholder, Greenlight Capital, wrote to the Magna Developments board saying they will be held responsible for any failure to live up to their fiduciary duties. Click here for that letter.
More bad news for Magna: just last week, Jerry Campbell, a former CEO of Magna Entertainment, resigned from the MEC board.
Copyright © 2009, The Paulick Report
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Tags: farallon capital management, Frank Stronach, greenlight capital, jerry campbell, Magna, magna developments, Magna Entertainment, mec, mid, mim, Paulick Report, Ray Paulick
February 25th, 2009 at 1:40 pm
Sorry to use your comments section as a forum, but I hadn’t seen the $600 million number before…
$300 million owed to MID, $40 Million to an Canadian bank…. What about the other $260 million? Is $600M just the value of total credit ever extended or actual outstanding loans as of close of business yesterday?….
The $40M is apparently backstopped with GG and SA, but did it ever slip out if specific assets are attached to either the MID money or the “other” $260 million?
Would be fun to be a fly on the wall these days….Unlike others I wish them no ill will, but it certainly is a bit of a soap opera….
February 25th, 2009 at 5:04 pm
Magna Entertainment’s most recent SEC filing, for the quarter that ended September 30, 2008, showed, in addition to the loans from the Bank of Montreal and MI Developments, some $226 million in “convertible subordinated debt.” I’ll go over the various filings sometime soon and see if I can figure out exactly whom that’s owed to.
February 25th, 2009 at 5:40 pm
The subordinated debt is mostly owned by pension funds from Frank’s home country Austria and it currently traaeds on the market for 30-40% of face value. There is a first mortgage to Wells Fargo Bank on Santa Anita with a balance of about $66 million not mentioned above. Stronach has always pulled a rabbit out of his hat, so we’ll see what happens now.
February 25th, 2009 at 6:09 pm
Now that you’ve armed me with some good goggle search terms….
MEC 2008 Reorg proposal:
$75 million 7.25% convertible subordinated notes due December 15, 2009
$150 million 8.55% convertible subordinated notes due June 15, 2010
(collectively, the “MEC Subordinated Notesâ€)
MEC 2002 Report:
“On December 2, 2002, the Company issued $75.0 million of 7.25% convertible subordinated notes which mature
on December 15, 2009. The unsecured notes”
MEC 2003 Report:
“In June 2003, the Company issued $150.0 million of 8.55% convertible subordinated notes which mature on June 15, 2010.The unsecured notes”
Ouch, How do you say “Mr Joe public takes it on the chin” in Austro-German? I assume unsecured means, tough luck, see ya later Charlie? (junk bonds?) Or do you get a seat at the bankruptcy court proceedings? They must not, or one would think you’d have complaints in German louder than Farallon and Greenlight and their miniscule $300M….
So our new tally without interest is:
$300 million owed to MID
$40 Million to an Canadian bank
$66 Million Wells Fargo
$225 Million Unsecured Subordinate Notes
Drumroll…. $631 Million ouch….
February 25th, 2009 at 6:44 pm
So its pretty obvious the shareholders in MECA get ziltch. You are forgetting the latest $48.5 million ($50 millon facility provided by MID) drawn down by MECA after the reorganization plan was announced last November There is actually $4-5 millon against Amtote and another $7.5 million due a credit facilty at Santa Anita. So, make that $690 million due before one cent goes to the common shareholders.
February 25th, 2009 at 7:34 pm
Why does this ring a faint Lundy-esque bell?
Huge amounts to be sure- how does it make sense for any company, especially in the racing industry, to borrow amounts that become due in one fell swoop- no repayment structuring of any sort? Do these racing financial gurus honestly think they are so far above what would be considered common sensical business dealings that the end of the tunnel is always two steps ahead yet the light lures the ignorant?
I find it hard to understand that shareholders voted to allow said loans - now they want to bail.
Always a bad idea to let non-racing entities be involved at such levels that it can impact tracks like GG and SA.
Apparently just as bad an idea to let Stronach be in charge- there is no telling what is REALLY going on behind closed doors- why the loans, the thinking behind them (or lack thereof).
It reeks of personal CYA and wouldn’t surprise a bit if it turned out to be just that.
Our industry is suffering and now, thanks to MIM/MEC dealings - outsiders get to make decisions that will have long term effects. Is anyone up there familiar with the act of thinking?!
February 27th, 2009 at 11:15 am
Unlike Gallop136, I wish Stronach and Magna all sorts of ill will - they are killing racing in my home state of Maryland racing and doing all sorts of irreparable damage everywhere their tentacles extend. Like the Wall Street crooks, Stronach has rewarded his own incompetence by giving himself millions in various sorts of compensation while running the company into the ground. He will no doubt realize millions more before he’s done.
So how does the racing industry regard Stronach? They just gave him another Eclipse Award. Typical.
March 3rd, 2009 at 10:11 am
im with you noelle…..same here with lone star park….