Magna Entertainment Corp. announces filing for Chapter 11 bankruptcy protection
March 05 2009 - 12:23PM
PR Newswire (US)
AURORA, ON, March 5 /PRNewswire-FirstCall/ -- Magna Entertainment
Corp. ("MEC" or "the Company") (NASDAQ: MECA; TSX: MEC.A), together
with certain of its wholly-owned subsidiaries, today announced that
it has filed voluntary petitions for reorganization under Chapter
11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware (the "Court") and will seek
recognition of the Chapter 11 proceedings from the Ontario Superior
Court of Justice under section 18.6 of the Companies' Creditors
Arrangement Act in Canada. MEC's day-to-day operations will
continue uninterrupted throughout the Chapter 11 process while it
undertakes to sell its assets and implement a reorganization of the
Company. As part of the Chapter 11 filing, the Company has sought
emergency relief to ensure the continued payment of employee wages
and benefits and horsemen winnings and its ability to honor
existing customer programs. XpressBet(R), MEC's account wagering
company, is not one of the MEC subsidiaries making a Chapter 11
filing. In connection with the Chapter 11 filing, MEC announced
that it has arranged a six-month secured debtor-in-possession
financing facility (the "DIP Financing") in the amount of $62.5
million from a subsidiary of MI Developments Inc. ("MID"), the
Company's largest secured creditor and controlling shareholder. The
Company will use the proceeds from the DIP Financing to fund its
operations during the Chapter 11 proceedings. If approved by the
Court, the DIP Financing will enable MEC to continue to satisfy its
obligations associated with the ongoing operation of its business,
including the ordinary course payment of employee wages and
benefits and horsemen and customer winnings, and payment of
post-petition obligations to vendors. The DIP Financing will be
secured by liens on substantially all assets of MEC, as well as a
pledge of capital stock of certain guarantors. Advances under the
DIP Financing must be made in accordance with an approved budget.
The terms of the DIP Financing contemplate that MEC will sell its
assets through an auction process and use the proceeds from the
asset sales to repay its creditors. Miller Buckfire & Co., LLC,
the Company's financial advisor and investment banker, will conduct
a marketing and sale process for the Company's assets. The terms of
the DIP Financing were considered by the Special Committee of MEC's
board of directors and the Special Committee retained independent
legal and financial advisors to assist in its deliberations. The
DIP Financing was approved by MEC's board, following a favourable
recommendation of the Special Committee. MEC also announced that it
has entered into an agreement with MID to sell its interests
associated with the following assets (the "Stalking Horse Bid"):
Golden Gate Fields; Gulfstream Park, including MEC's interest in
The Village at Gulfstream Park(TM) (a joint venture with Forest
City); Palm Meadows Training Center; Lone Star Park; AmTote
International, XpressBet(R); and a holdback note associated with
the sale of The Meadows. The aggregate offer price for the assets
is $195 million and is payable in the form of $44 million cash,
MID's assumption of a $15 million capital lease and a $136 million
credit bid of MEC's existing indebtedness to MID. Under the
agreement, MEC will seek Court approval of a process to market
these and other MEC assets and MID's offer may be topped by third
parties during the Chapter 11 auction process. MID will not receive
any termination fees if MEC sells any assets to a third party, but
may receive reimbursement for its expenses in connection with the
Stalking Horse Bid. The terms of the Stalking Horse Bid were
reviewed and recommended by the independent directors of MEC and
approved by the board of directors of MEC. All of MEC's businesses,
including racetracks, casinos, XpressBet(R), and its tote services
company, AmTote International, remain functional and will continue
to conduct business as usual during the Chapter 11 proceedings.
XpressBet(R) is not one of the MEC subsidiaries making a Chapter 11
filing. Further information about the Chapter 11 filing is
available on MEC's website at
http://www.magnaent.com/restructuring. After extensively exploring
alternatives following thorough consultation with its legal and
financial advisors, MEC's board of directors determined that an
orderly sale of the Company's assets through a Chapter 11 process
is the most prudent and effective way to maximize value for MEC's
stakeholders. Frank Stronach, MEC's Chairman and Chief Executive
Officer, commented, "Simply put, MEC has far too much debt and
interest expense. MEC has previously pursued numerous out-of-court
restructuring alternatives but has been unable to complete a
comprehensive restructuring to date due, in part, to the current
economic recession, severe downturn in the U.S. real estate market
and global credit crisis. This is a voluntary filing intended to
utilize a Chapter 11 process that will allow us to continue to
operate the business uninterrupted while we implement a
reorganization in a court-supervised environment. We expect that
all employees, customers and horsemen will continue to be paid in
the normal course along with all post-petition vendor obligations."
MEC also announced that one of its subsidiaries in Austria has
entered into an agreement to sell to a subsidiary of Magna
International Inc. ("MI") approximately 100 acres of real estate
located at MI's European Head Office complex in Oberwaltersdorf,
Austria for a purchase price of 4.55 million Euros (approximately
US$5.7 million using prevailing currency exchange rates). The
closing of the transaction is expected to occur during the second
quarter of 2009 following the satisfaction of customary closing
conditions including obtaining all necessary regulatory approvals.
The sale transaction was reviewed and recommended by MEC's
independent directors after receiving legal advice and appraisals
of the property, and approved by the board of directors of MEC. The
sale was reviewed and recommended by a committee of MI's
independent directors after receiving independent legal advice and
appraisals, and approved by the board of directors of MI. MEC will
file a material change report as soon as practicable after issuing
this press release. The material change report will be filed less
than 21 days before the closing of the DIP Credit Agreement. The
timing of the material change report is, in MEC's view, both
necessary and reasonable because the terms were approved by MEC's
board of directors on March 5, 2009 and MEC requires immediate
funding to address its liquidity requirements. ABOUT MEC MEC, North
America's largest owner and operator of horse racetracks, based on
revenue, develops, owns and operates horse racetracks and related
pari-mutuel wagering operations, including off-track betting
facilities. MEC also develops, owns and operates casinos in
conjunction with its racetracks where permitted by law. MEC owns
and operates AmTote International, Inc., a provider of totalisator
services to the pari-mutuel industry, XpressBet(R), a national
Internet and telephone account wagering system, as well as
MagnaBet(TM) internationally. Pursuant to joint ventures, MEC has a
fifty percent interest in HorseRacing TV(R), a 24-hour horse racing
television network, and TrackNet Media Group LLC, a content
management company formed for distribution of the full breadth of
MEC's horse racing content. This press release contains
"forward-looking statements" within the meaning of applicable
securities legislation, including Section 27A of the United States
Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act") and forward-looking information as
defined in the Securities Act (Ontario) (collectively referred to
as forward-looking statements). These forward-looking statements
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and the Securities Act
(Ontario) and include, among others, expectations as to the
reorganization of the Company's business and finances to resolve
its operational and liquidity issues, the sufficiency of liquidity
to be provided by the debtor-in-possession financing facility,
anticipated authorizations being requested of the Bankruptcy Court
and expectations as to the ability to make post-petition payments,
and other matters that are not historical facts. Forward-looking
statements should not be read as guarantees of future performance
or results, and will not necessarily be accurate indications of
whether or the times at or by which such performance or results
will be achieved. Undue reliance should not be placed on such
statements. Forward-looking statements are based on information
available at the time and/or management's good faith assumptions
and analyses made in light of the Company's perception of
historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate
in the circumstances and are subject to known and unknown risks,
uncertainties and other unpredictable factors, many of which are
beyond the Company's control, that could cause actual events or
results to differ materially from such forward-looking statements.
Important factors that could cause actual results to differ
materially from the Company's forward-looking statements include,
but may not be limited to, the Company's ability to obtain court
approval with respect to its motions in the Chapter 11 proceedings;
the ability of the Company and its subsidiaries to prosecute,
develop and consummate a plan of reorganization with respect to the
Chapter 11 proceedings; risks associated with third party motions
in the Chapter 11 proceedings, which may interfere with the
Company's ability to develop and consummate a plan of
reorganization; the potential adverse effects of the Chapter 11
proceedings on the Company's liquidity or results of operations;
and material adverse changes in: general economic conditions; the
popularity of racing and other gaming activities as recreational
activities; the regulatory environment affecting the horse racing
and gaming industries; the Company's ability to obtain or maintain
government and other regulatory approvals necessary or desirable to
proceed with proposed real estate developments; increased
regulation affecting certain of the Company's non-racetrack
operations, such as broadcasting ventures; and the Company's
ability to develop, execute or finance the Company's strategies and
plans within expected timelines or budgets. In drawing conclusions
set out in our forward-looking statements above, we have assumed,
among other things: the ability of the Company to obtain court
approval with respect to its motions in the Chapter 11 proceedings;
the ability of the Company and its subsidiaries to prosecute,
develop and consummate a plan of reorganization with respect to the
Chapter 11 proceedings; that the Company will be able to manage the
risks associated with third party motions in the Chapter 11
proceedings and they will not interfere with the Company's ability
to develop and consummate a plan of reorganization; the Company
will be able to adequately manage any potential adverse effects of
the Chapter 11 proceedings on MEC's liquidity or results of
operations. Forward-looking statements speak only as of the date
the statements were made. We assume no obligation to update
forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting forward-looking
statements. If we update one or more forward-looking statements, no
inference should be drawn that we will make additional updates with
respect thereto or with respect to other forward-looking
statements. SOURCE: Magna Entertainment Corp. DATASOURCE: Magna
Entertainment Corp. CONTACT: Blake Tohana, Executive Vice-President
and Chief Financial Officer, Magna Entertainment Corp., 337 Magna
Drive, Aurora, ON, L4G 7K1, Tel: (905) 726-2462,
http://www.magnaent.com/; or Marc Puntus, Tel: (212) 895-1819,
Michael Wildish, (212) 895-1827, Miller Buckfire & Co., LLC,
153 East 53rd Street, 22nd Floor, New York, NY 10022 USA
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