A proposal by its parent company, Canada-based MI Developments (MID), to reorganize the company has been scrapped, primarily because of opposition from some of its shareholders.
The plan would have provided Magna Entertainment with an infusion of $50 million in cash for daily operations and another $75 million to fund the company’s plans for a racino in Maryland.
The latter project was derailed when Magna Entertainment subsidiary, Laurel Park, filed a racino application without the necessary $28.5 million license fee. The racino application was rejected by Maryland officials.
After the restructuring plan was announced, David Einhorn, head of the hedge fund Greenlight Capital, sent a letter to Magna Developments opposing the plan.
"The majority of shareholders of MID do not support the use of MID’s valuable cash flows to fund Magna Entertainment Corp. The plan is just one more egregious attempt to further erode MID’s value," wrote Einhorn.
Frank Stronach, who parlayed his multi-million dollar fortune from a Canadian auto parts business into the development of America’s most successful thoroughbred breeding and racing business, is chairman of both Magna Developments and Magna Entertainment.
Stronach formed Magna Entertainment seven years ago with an eye toward controlling the majority of major racing signals in North America. The company currently owns Santa Anita in California and Gulfstream Park in Florida, the two most popular winter racing venues.
However, since its beginning, Magna Entertainment has failed to make a profit and has continued operating by selling real estate and also borrowing cash from Magna Developments.
The first major repayment day will be March 20 when the company is required to repay a bridge loan of $126 million that it borrowed from a subsidiary of MDI. Other loans due at that time are $100 million in financing for its Gulfstream Park reconstruction and a $48.5 million loan taken out in December, 2008.
Some analysts have already predicted defaults on these loans unless Magna Entertainment is able to renegotiate loan agreements or can sell off more real estate. Late last year, the company said it hoped to sell Remington Park in Oklahoma, Thistledown in Ohio and Portland Meadows in Oregon.