Judge OKs transfer of Laurel and Pimlico

Posted: 7:44 pm Mon, April 26, 2010
By Liz Farmer
Daily Record Business Writer

WILMINGTON, Del. — A judge Monday approved Magna Entertainment Corp.’s reorganization plan, which includes the transfer of Maryland’s race tracks to parent company MI Developments Inc.

That means that by the time the Preakness Stakes is run on May 15, Pimlico Race Course will be under new ownership for the first time in nearly eight years.

MID hopes to take ownership of five tracks, including Laurel Park and Pimlico in Maryland, by Friday night pending gaming licensing approval in Florida, according Magna attorney Brian Rosen.

Rosen said after the Monday hearing in U.S. Bankruptcy Court in Delaware that Magna would agree to the language changes in the track’s confirmation plan outlined in Judge Mary F. Walrath’s ruling.

“We’re all going to get it done,” said Rosen, when asked how fast Magna could work to get the necessary changes by the end of the week.

During a three-day hearing, much of the talk focused on how much Magna’s properties are worth. In exchange for assuming Magna’s secured debt, some unsecured debt and settlement payments, MID is slated to take on a large percentage of Magna’s portfolio, including the Maryland properties, Golden Gate Fields and Santa Anita Park in California and Gulfstream Park in Florida.

Donna Harris, an attorney for a group of equity shareholders objecting to the plan, said in her closing arguments Monday that because Magna did not let Maryland’s race tracks go to auction, the company was essentially hiding the true market value of the properties. In its reorganization plan, Magna valued the Maryland Jockey Club, which includes Laurel, Pimlico and the Bowie Training Center, at a total of $30 million.

“[The auction] was postponed four times, and this was a case where there were a number of second-round bidders,” she said. “That’s significant, because looking at bids that were placed as sort of an opening offer, we have seen that from the opening bid to auction [in other auctioned-off tracks] we could be talking about three times as much value, if not more.”

Magna, on the other hand, argued that many of its properties were losing propositions. Rosen noted that even though the Preakness Stakes netted roughly $8 million in revenue last year, the Maryland properties combined lost a total of roughly $11 million. Other properties owned by Magna had fetched far more at auction than the opening bids suggested, Harris said, pointing to the sale of Lone Star Park in Texas last October. The track sold at auction for $48 million, roughly $20 million more than the initial bid placed by the Chickasaw Nation of Oklahoma.

Walrath said she did not find that argument credible.

“I believe this process was designed to maximize the sales,” she said. “In fact, several sales were concluded and they realized some value for the estate.”

However, she said the shareholders had some merit when they that noted that, in some cases the land’s appraisal value was higher than the value Magna had placed on the property. In her ruling, Walrath ordered that Magna change the value of its properties to the higher value, or the “raw land” value.

But those changes in value did not overshadow the significant financial commitment by MID. The parent company is taking on roughly $750 million in secured debt, unsecured debt and settlement payments.

“It’s well in excess of what the values of these assets are,” Walrath said. “It is also significant to this court that these operations, for the most part, do not break even. They are not assets that have been generating millions of dollars.”

Walrath also ordered that Magna clean up some of the ambiguous language in its confirmation plan regarding who is released of their obligation to pay debts.

Rosen said after the ruling that both those changes could be made by the end of the week. However, he added if MID does not secure a license to operate gaming at Gulfstream Park by Friday, that could delay confirmation.

He said if that was the case, he expected a delay of no more than a week.

Magna bought majority ownership of Maryland’s race tracks in 2002 from the De Francis family. At the time it was hoped that corporate ownership and the available financing that afforded would help revive racing in Maryland.

Magna, which has lost more than $100 million a year for the last six years, filed for bankruptcy in March 2009.