GREG KEENAN
From Friday's Globe and Mail Published on Friday, Feb. 20, 2009 12:00AM EST Last updated on Friday, Jan. 29, 2010 4:02AM EST
Magna Entertainment Corp., the gambling and racetrack arm of Frank Stronach's empire, has less than two weeks to come up with about $40-million (U.S.) to pay back a credit facility with Bank of Montreal and another $175-million due to its parent company after a financial restructuring deal fell apart.
The proposal, which would have severed the controversial relationship between MI Developments Inc. (MI) and Magna Entertainment (MEC), was scrapped because of "current global economic conditions, the continued disruptions in the financial markets and ongoing uncertainty in the automotive industry," MI said in a statement.
It's unlikely new debt financing could be raised, nor would it be prudent to do so until the crisis in the automotive sector is resolved, said MI, which owns about 59 per cent of MEC and also the land under many of the plants operated globally by auto parts giant Magna International Inc. Mr. Stronach is chairman of all three companies.
"We'll find some answers" to the MEC situation, Mr. Stronach said in a brief telephone interview yesterday. "We're working on things."
He declined to comment further.
MEC said yesterday that the Toronto Stock Exchange is reviewing the eligibility of the company's shares for continued listing.
The MI ownership position in the racetrack company has been a bone in the throat of minority shareholders for several years. They have watched the real estate company lend hundreds of millions of dollars to MEC to buy racetracks, redevelop a track into a retail, residential and entertainment complex, and finance the construction of slot parlours.
Mr. Stronach has insisted that MEC will be profitable, but it has lost more than $400-million in the past four years. Final results for 2008 have not been released yet.
Under the terms of the deal, Mr. Stronach would have ultimately ended up controlling MEC, and MI would have been prohibited from making new investments in the company without approval of a majority of minority shareholders.
MEC's financial statements have contained a warning for more than a year that its ability to continue as a going concern is in doubt because of the losses and a deficiency in working capital.
The racetrack company said it is in discussions with MI about alternatives to the plan. "MEC cautions shareholders and others considering trading in securities of MEC that there can be no assurance that any alternative transaction will be completed," MEC said.
Magna Ent. (MEC.A)
Close: 50¢ (Cdn.), down 16¢
MI Developments (MIM.A)
Close: $7.84, down 59¢
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