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Monday, March 09, 2009

Magna Bankruptcy Cuts Wide Swath

A reader sent me the court documents from the Magna bankruptcy filing (all public information, available, at a price, at the Pacer Service Center), and the breadth of the company's debt is breathtaking. A spreadsheet with the complete list of creditors runs 510 pages of 66 lines each. And though it contains numerous duplicate names, I'd say that the true number lies well into the upper range of the 10,001 - 25,000 box checked on their voluntary petition. One thing's for sure - their assets are for certain well at the low end of the More than $1 billion box selected, at $1,049,387....a subjective figure in any case, especially so at this point in time.

Bank of New York has, by far, the largest claims - some $127 million at an interest rate of 8.55% that is nearly usurious by today's standards; as well as nearly $76.2 million at an only slightly more acceptable 7.25%. And you wonder why they're in Chapter 11?

The list of the 50 largest unsecured creditors runs the gamut of companies and individuals both in and out of the racing industry. NYRA appears on the list twice, with two claims, both denoted as 'settlements,' in the amounts of $830,175 and $288,285. Magna owes the Maryland horsemen $3.8 million, the most owed to any such group; the Florida horsemen are in for over $2.1 million. The company is deeply in debt to, amongst others, insurance companies Aon Reed Stenhouse and Zurich North America, the Northern and Southern California off-track wagering companies, the Las Vegas Dissemination Company, Royal River Racing OTB in South Dakota, the Oklahoma Tax Commission, racetracks Louisiana Downs, Churchill Downs, Fair Grounds, Tampa Bay Downs and Gulf Greyhound, Juddmonte Farms, marketing consultants The Leffler Group, Ranger Construction in Florida, video surveillance company Aware Digital, Florida Power and Light, horsemen Jerry Hollendorfer, Bob Baffert, B. Wayne Hughes, and Cecil Peacock, Max International, and the Southern Service Company, which appears to be a shady Florida-based hotel cleaning and maintenance company, a Google search of which yields no website and a litany of complaints regarding the use of undocumented workers. Nice going there, Frank.

Also listed as creditors and of local interest here (and thanks to the reader for taking the time for weeding these out) we have the Daily Racing Form, NYC and other regional OTB's, the New York Times, the NY Turf Writers, the National Museum of Racing, lobbyist Patricia Lynch, the New York State Child Support Processing Center, the State Racing and Wagering Board, Friends of New York Racing, the Monticello and Saratoga harness tracks, the NY State Commission on Public Integrity, NY Corporate and Sales Tax, Specialty World Food in Albany, the NY Senate Republican Campaign Committee, and Angel Cordero, Jr. Gee, I should check to see if I'm on that list. Magna has left few segments of the already reeling economy unscathed.

Andy Beyer wrote about the situation in the Washington Post, and one point he made bears repeating, as it's an important distinction I believe during the still developing economic crisis.

The bankruptcy of the Magna Entertainment Corp.....was not another case of a company ruined by executive greed. On the contrary.

Magna's all-powerful chairman, Frank Stronach, loves horses and racing. He has invested countless millions of his own dollars in his personal breeding and racing operation, and his passion for the game led him to buy racetracks from Gulfstream Park to Santa Anita. He wasn't motivated by the desire to install slot machines or any other hidden agenda. He genuinely thought he could make horse racing more enjoyable and more popular.
But I wonder if Frank was ever really fully focused on his vision for the future of racetracks. I don't recall him ever really articulating a coherent vision, mostly just sound bytes about shopping malls and movie theaters. He's never been a spokesperson for the industry. He had so many things going on, in particular Magna International, his auto parts company, the one in which he actually made money. Over the last few years, he was working on his ill-fated deal with the Russian businessman Oleg Deripaska, which came after a lengthy campaign to win shareholders over for the deal. And that's aside of course from overseeing the operations of several companies, running his breeding operation, developing his energy drinks, and trying to keep the executive spots at Magna Entertainment filled. How is a guy like that supposed to spend any quality time at the races?

It's too bad, really. I always thought that Frank meant well; I think he had only the best intentions when he completely ruined Gulfstream. That's the real tragedy here I believe, aside of course from the prospect of some Magna racetracks soon becoming shopping malls or condos and the resulting livelihoods lost. Here was a guy who really did have the passion AND the money to really help the sport. Yet it's now entirely possible, depending on the eventual disposition of the tracks that are involved, that he will leave the game in significantly worse shape than how he found it.

11 Comments:

Anonymous said...

Hard to say what MEC is really doing in this bankruptcy case. Is it a reorganization or a liquidation of assets? Moving Gulfstream, Lone Star & G.Gate up to the parent company MID to saisfy one of the debt pieces after the parent injects another $44 million into MEC is quite a maneuver. The two most valuable assets, Santa Anita and the MD tracks/Preakness are being held off to the side for no so that Stronach can figure out how to take them for himself. Frank seems to get so involved with the keeping "control" parts of his strategy that it outweighs his underlying good intentions for horse racing.

El Angelo said...

I think that basically is/was Stronach's "plan", the idea that racing, while great, can't really support itself anymore without other bells and whistles, and wanted to incorporate other elements like shopping, clubs, hotels, etc., with the racetrack. At some level, it's really not that different from the stadium accouterments that are being built in other sports.

Sunny Jim said...

To start, Stronach made off with 30 to 50-million dollar salaries since the '90's, in Canadian dollars. Only in '08, well after Magna's stock price was in the tank, did he reduce this number to $10 million. If anyone thinks this is reflective of someone who has the interest of the racing industry at heart, then we'll have to just disagree.

Every time someone criticizes Stronach on one of these forums, there are those who come rushing to his defense - he took risks, he was so dedicated, he was innovative, he loved the sport.

Parents with second jobs to put kids through college, night-shift nurses, Ground Zero diggers, public interest lawyers for the homeless, effective math and science teachers in inner-city schools, these are what comes to mind when I think of dedication and self-lessness.

Frank Stronach's racing empire is bleeding money in an industry in which people bring pockets full of money to leave at a gambling venue and in the majority of cases return home with nothing to show for it.

Something stinks and it ain't from the horse stalls.

Anonymous said...

I always wondered how much of Frank's "personal" investment in racing was truly at the expense of stockholders?

A blurred line, for sure, and not much different than the other extremely overpaid CEO's of failing companies except for the small fact that most of those other companies actually made money during some point of the maligned CEO's tenure.

Guess there is no public bail out coming to this failed venture. The saving grace is that the best use of these racetracks in this market may actually be race tracks, not too many shopping malls being developed right now.

You just know that the goverment debtors will try to satisfy their intests by taking the land, after which Casino gambling will immediately be approved.

onecalicocat said...

Very interesting list of creditors. Hope they don't get burned and that there are adequate assets to cover the claims.
I can't say what's a high rate of interest and what's not but Plains Petroleum just paid more than 11 percent interest to float $360 million in senior notes.
Plains has a huge asset base of oil and gas properties, with much of the next couple of years production previously hedged at nice prices much higher than today's energy prices.
I don't see Plains as a real high risk debt offering but in today's scary times it's hard to get money unless you pay a big premium to the lenders.
Bottom line, the interest rate for Magna may not be all that bad -- but clearly if you can't pay it off the interest rate doesn't matter all that much.

Steve Zorn said...

For a company that's been heading for bankruptcy for years, those interest rates aren't at all high. MI Developments had most of the first liens on the real estate assets, so other lenders knew they were taking significant risk.

I agree that the asset valuation is probably way overstated. If this turns into a liquidation, I can't see how the tracks would sell for anythi ng like the values that they're carried on MEC books.

Anonymous said...

Those interest rates are actually quite low, representative of the position of the company and the credit market environment when the debt was sold in 2003. For reference, the average non-investment grade bond is now yielding 18%. The participation of MID in the DIP financing may appear peculiar, but is in line with what is happening in most other bankruptcies, in that it is being left to the largest creditors to provide DIP financing.

Anonymous said...

Somewhere, Bob Brennan has a smile on his face.

alan said...

>>Somewhere, Bob Brennan has a smile on his face.

That would be at the Fort Dix Federal Correctional Institution.

Glimmerglass said...

Mr "Due Process" has a release date from Ft Dix of December 26, 2011.

Anonymous said...

how can the Delaware bakruptcy court allow the sale of one racetrack, Remington park for 80million? which of the creditors will they pay with the money...Seems like someone will not get paid...