by | 11.17.2010 | 12:47am
By Ray Paulick
The Chapter 11 bankruptcy filed yesterday by Zayat Stables stems from a “tale of two banks,” owner Ahmed Zayat contends, both of them named Fifth Third. The first, a “good bank,” was the one based in Lexington, Ky., that sought business in the Thoroughbred industry and worked with its clients. The second, the recipient of $3.2 billion in federal funds from the TARP bailout, was the “bad bank,” one based in Cincinnati, Ohio, and getting out of the equine lending business.

Fifth Third filed suit against Zayat in December, alleging the New Jersey-based businessman owed $34 million in unpaid loans. Zayat contends the suit is part of a “scorched earth litigation practice” by a bank “reneging on its promises.” He countersued.

Zayat formed his stable in August 2005 and had as many as 203 horses at one time. He has been among the leading owners in the United States since the stable's formation. His equine investments totaled more than $40 million, Zayat said, and the company's strategy was geared toward developing top-class racing stock that would provide short-term returns in purses and long-term dividends in breeding residuals. Longer range plans for the Delaware-based LLC “envisioned acquisition of companies involved in equine health research and product development as well as the possibility of racetrack ownership.”

Zayat's filing with U.S. Bankruptcy Court in New Jersey “seeks protection so it can continue to operate its business and build on its success, for the benefit of all of its creditors in the face of predatory lending practices” by Fifth Third.

Zayat contends he and Fifth Third were in discussions to renegotiate the outstanding loans last summer and fall, and Zayat contends the bank agreed to terms. The agreement, he said, prompted him to withdraw 10 yearlings he intended to sell at the 2009 Keeneland September yearling sale, along with 57 horses entered during the Keeneland November breeding stock sale. Instead of being a seller at Keeneland, Zayat bought 24 yearlings at the September sale, with the sale company extending him credit of $3,131,500, he said.

The 20 largest unsecured creditors listed in his bankruptcy petition include several trainers ($148,790 owed), veterinary clinics and pharmacies ($143,258), stallion farms ($318,000), vanning and air transport companies ($85,596), consignors ($54,682) and boarding farms ($65,907).

Zayat Stables is seeking protection from the Bankruptcy Court to continue to operate while reorganizing its business. “The Debtor does not intend to languish in Chapter 11,” Zayat wrote. “Rather, the Debtor intends to quickly file a plan of reorganization that will allow for the restructuring of all of its debts as recognized by this Court and preserve a going concern value for the benefit of the Debtor's stakeholders.”

Click here to read Zayat Stables Chapter 11 affidavit in support of first-day motions.

Click here to read Zayat Stables' voluntary bankruptcy petition and list of unsecured creditors.

Copyright © 2010, The Paulick Report

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