The real estate arm of Frank Stronach's empire has offered another arm, Magna Entertainment Corp., $30-million in new financing and extended repayment on another $180-million as the embattled racetrack and gambling company struggles to sell off assets and reduce debt.
MI Developments Inc. also rolled over $40-million in debt that was due to the Bank of Montreal last week as the real estate company studies a reorganization proposal that would ultimately shed its 59-per-cent stake in MEC and transfer it to Mr. Stronach.
"Although MEC continues to implement its debt elimination plan, the sale of assets contemplated under the debt elimination plan is taking longer than originally contemplated and the success of the debt elimination plan is not assured," MEC said in a statement issued late Friday evening in which it also announced the extensions of the loan repayments.
MEC has lost more than $500-million since 2003 and has been surviving on infusions from MI Developments and has put in place a debt elimination plan that involves selling off several racetracks.
At the same time, MEC is spending several hundred million dollars to redevelop one of its flagship horse racing tracks, Gulfstream Park, north of Miami.
The $40-million Bank of Montreal loan has been extended to July 30, while the loans from its parent company will now come due on Aug. 31.
But if the reorganization proposal for MEC's parent is not approved, the maturity dates of all those loans will be accelerated.
The MI Developments loans will become due one month after the date on which the real estate company notifies MEC that the reorganization is not going ahead. The Bank of Montreal loan will be due 14 days before the MI Developments loans.
The complex restructuring plan for the real estate company calls for Mr. Stronach to pay $25-million for its stake in MEC.
MI Developments will transfer $150-million in cash, real estate in Aurora, Ont., and about $250-million worth of loans from MEC to a company controlled by Mr. Stronach.
A new real estate company to be established would have no links to MEC, but its main revenue source would continue to be rents paid by auto parts company Magna International Inc. Mr. Stronach is chairman of all three companies.
The deal is supported by shareholders who own about 50 per cent of MI Developments class A subordinate voting shares, but it's opposed by two of the three largest shareholders.
Among the latter is Los Angeles-based investment firm Hotchkis and Wiley Capital Management, which holds about 11 per cent of the real estate company's shares.
"Again, we reiterate our desire that you recommend against the proposed reorganization based on the egregious and unnecessary value transfer from the existing shareholders to Mr. Stronach," David Green, a principal and portfolio manager at investment firm Hotchkis and Wiley said in a letter earlier this month to the independent committee of MI Developments board that is assessing the transaction.
The company's shares would be worth $50.81 if it were run optimally, the investment firm said.
MI (MIM.A)
Friday close: $25.50, down 34¢