Magna Entertainment files reorganization plan based on creditors dropping lawsuit

Magna Entertainment files reorganization plan

DOVER, Del. — Horse-track owner Magna Entertainment Corp. filed a reorganization plan in Delaware bankruptcy court on Thursday after reaching a settlement with unsecured creditors who accused its parent company of sham financial transactions.

According to a filing by MEC on Thursday, its committee of unsecured creditors agreed to drop a lawsuit claiming that Ontario-based MI Developments, and its chairman, Frank Stronach, propped up Magna with equity infusions disguised as secured loans to ensure that Stronach retained control of MEC assets.

The lawsuit claimed that Magna fraudulently transferred more than $125 million in loan payments to a subsidiary of MID in the two years leading up to Magna’s Chapter 11 filing. It sought to recharacterize MID’s loan claims as equity interests and to subordinate them to other claims.

In exchange for the lawsuit being dropped, MID will pay $75 million to holders of allowed general unsecured claims against MEC and its debtor affiliates, except the Maryland Jockey Club. Any distributions to creditors of the Maryland Jockey Club would come from the sale of jockey club assets, which include Laurel Park and Pimlico race tracks.

Other terms of the plan call for MID to receive the first $20 million in proceeds from the sale of the Maryland Jockey Club or its assets, and half of any amount above that after certain claims are satisfied.

MID also would receive the first $20 million in proceeds from the sale of Thistledown race track in Ohio, and any proceeds above $20 million from the sale of Lone Star Park in Texas.

In addition to a share of those sale proceeds, ownership of other MEC assets, including Santa Anita Park and Golden Gate Fields in California, and Gulfstream Park in Florida, would be transferred to MID.

In its disclosure statement, which will be the subject of a March 23 hearing, MEC defended the settlement.

“The settlement resolves an extremely complex litigation regarding difficult claims, and a potential dispute over asset valuations, by providing equal recoveries to all general unsecured claimants,” MEC attorneys wrote.

A hearing was scheduled Friday on the state of Maryland’s assertion that it has a right of first refusal in any sale of Maryland Jockey Club assets. The state has fought to ensure that any purchaser of the Maryland assets be required to keep the Preakness race, the second race in horse racing’s Triple Crown, at Pimlico, in Maryland.

Magna, the largest horse-track owner in the United States, filed for bankruptcy protection in March, saying it was unable to obtain new financing while supporting its existing debt.