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Frank Stronach says he is now prepared to pay down debt by selling a controlling stake in one of Magna Entertainment Corp.'s prized assets.
The Santa Anita racetrack in California, which stages some of the most prominent thoroughbred races in the United States, is worth an estimated $500-million (U.S.). Until Wednesday, Mr. Stronach said he would not sell the facility.
“We do have high debt and we may find that we have to sell 50 or 60 per cent of Santa Anita,” Mr. Stronach conceded during a second-quarter conference call.
“We have that fallback position to get the company on a viable basis.”
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The sale would allow MEC to focus on its core holdings, including Florida's Gulfstream Park and Maryland's Pimlico Race Course, home of the Preakness Stakes.
The racetrack and casino operator owes $577.8-million, and has stayed alive thanks to cash infusions from controlling shareholder MI Developments Inc. A Santa Anita sale could appease disgruntled investors, who have suggested a sale would be the easiest way to balance the books.
MEC's plan to reduce debt by selling racetracks and properties in the U.S. has been hindered by a slow economy.
The company said Wednesday that its future is in “substantial doubt” unless it can restructure $229-million in debt that comes due in the next 12 months – including a $40-million loan from Bank of Montreal due on Aug. 15.
The company did unload one track in the last quarter, selling Michigan's Great Lakes Downs to the Little River Band of Ottawa Indians for $5-million. The 85-acre property had been closed for a year.
Mr. Stronach hinted strongly Wednesday that the company's debt problems could be solved if shareholders accepted his restructuring proposal.
The plan calls for MI Developments to sell its stake to a group led by Mr. Stronach for $25-million.
Mr. Stronach is chairman of both companies, as well as auto parts giant Magna International Inc., which would provide a $1-billion loan to a new real estate company that would replace MI Developments as the owner of the land under hundreds of Magna auto parts plants. MI Developments would transfer $150-million in cash, real estate in Aurora, Ont., and about $250-million worth of MEC debt payable to MI Developments to a company controlled by Mr. Stronach.
Two of the three largest shareholders of MI Developments have expressed opposition to the proposal, and were to argue their case at a meeting on July 24, which was postponed indefinitely.
Los Angeles-based Hotchkis and Wiley Capital Management has called the deal “an egregious and unnecessary value transfer from existing shareholders to Mr. Stronach,” but Mr. Stronach Wednesday maintained the plan would strengthen MEC's financial position.
“This would have a dramatic and positive impact on the balance sheet and cause us to reconsider asset sales,” he said.
Despite continuing losses, Mr. Stronach insisted the company could be rebuilt. MEC lost $21.3-million in the second quarter, compared with $23.4-million a year ago. Revenue fell to $166.3-million from $167-million. The company also executed a 20-for-one reverse stock split in the quarter to ensure its share price remained above $1, which was necessary to maintain its Nasdaq Stock Market listing.
“Keep in mind that I put money in this year and last year to backstop this, and I think I'm reasonably intelligent,” he said. “I wouldn't throw my money into an empty hole.”
