Posts Tagged ‘magna developments’

By Ray Paulick
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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By Ray Paulick

While Congress begins deliberations on the proposed economic bailout package that could cost taxpayers as much as $1 trillion, Thoroughbred owners and breeders are beginning to feel the effects of the turbulence on Wall Street and other world markets.

The financial markets meltdown came smack dab in the middle of the industry’s most important transactional event: the Keeneland September yearling sale. The sale began with a lowered price ceiling during opening select sessions that saw some resilience in the middle market, but, as many consignors feared, the bottom fell out after the first week. Most yearlings going through the ring in the latter part of the Keeneland sale will reflect economic losses to their owners once stud fees, mare investment  and boarding costs are taken into consideration.

But those losses are minor compared to what’s happened on Wall Street, which traditionally has created much of the wealth that’s found its way into the yearling market. “If anyone is dependent on new money in the horse business, I don’t think this is going to be a very good time for them,” one business analyst told the Paulick Report.

In addition, many yearling-to-juvenile sale pinhookers from Florida depend on bank loans to fund at least a portion of their investment, and those loans or lines of credit from banks are evaporating in the current crisis that actually began last August with the sub-prime mortgage fiasco.

Loans of all kinds will be more difficult to acquire, one banker told the Paulick Report, whether it’s for pin-hooking, stallion and mare acquisitions, or real estate. “A wide range of people need bank financing to buy farms or mares,” he said. “Some people who didn’t start off thinking they wanted to borrow end up taking out loans just like any other business often does. Stallion deals are often supported by banks. No matter what you are borrowing money for, it’s harder now and it will cost more. Everything is going to be more difficult.”

In addition, the banker said, many businesses with “standing operating lines of credit” are going to feel the crunch. “There are acquisitional and seasonal businesses. Some spend money all year and collect over just a couple of weeks. Stallion or mare purchases term out over a number of years.”

The crisis could have a severe effect on the bloodstock markets at Fasig-Tipton and Keeneland in October and November, especially for mares in the $50,000 and under price range. It is expected the top end of the market, which is unlikely to establish any new records for high prices, will maintain some semblence of strength. The deadline to enter mares and weanlings in Keeneland’s massive November breeding stock sale preceded the financial market meltdown. What will be interesting to follow is the number of horses entered for Keeneland’s January sale of horses of all ages. Will breeders look ahead at cutting their losses on marginal mares and newly turned yearlings?

The credit tightening comes as uninsured money market funds have disappeared into treasury bills and other secured investments. Banks that were counting on money market dollars to buy up bonds, mortgages and other loans now require cash on hand to extend credit to their customers. That cash, in many institutions, simply doesn’t exist in abundance.

“Things that have some value in the real world, like real estate loans, have no value in the market,” one analyst said. “Assets that used to be like cash no longer are like cash.”

Many in the horse business are watching how the crisis is affecting the financially troubled Magna Entertainment (MECA)  and its real estate affiliate, MI Developments (MID). Magna Entertainment is the racetrack operating company that is living month to month on bridge loans from MID and other creditors. Magna, controlled by Frank Stronach, owns Santa Anita Park (host of the 2008 and 2009 Breeders’ Cup) and Golden Gate Fields in California, Gulfstream Park in Florida, Pimlico and Laurel Park in Maryland, Lone Star Park in Texas, and Remington Park in Oklahoma, and several smaller tracks. Its stock, battered in recent years and recently the subject of a 1-for-20 reverse split to retain its listing on the exchange, has declined by 25% in the last five trading days, closing Monday at $4.39 per share.

Copyright © 2008, The Paulick Report

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