Thursday, February 19, 2009

MEC Reorganization Plan Scrapped


Magna Entertainment Corp. said Feb. 18 it might not be able to meet pressing financial obligations unless alternative measures are found, a revelation disclosed following the sudden halt of a controversial reorganization proposal for the company and its controlling shareholder, MI Developments.

The proposal, which was announced Nov. 26, 2008, was called off "due to current global economic conditions, the continued disruptions in the financial markets, and ongoing uncertainty in the automotive industry," according to a news release from MID.

MID said it determined it is unlikely the company will be able to arrange the new debt financing associated with the proposal. Although the proposal contemplated the possibility that the new debt could be arranged after closing, MID said it does not believe it would be "prudent" to raise the new debt until such time as the ongoing uncertainty in the automotive industry has been resolved.

Updates were also announced in accordance with the terms of respective loan agreements under the proposal. The maturity date of the first tranche of the new $75-million loan that MID made available to MEC on Dec. 1, 2008, will be moved to March 20.

Additionally, the maturity date of the bridge loan and repayment of $100 million under the Gulfstream project financing will each also be accelerated to March 20. The maturity date of the second tranche of the new loan has already been accelerated to May 13, the company said.

Also, the maturity date of MEC’s $40-million credit facility with a Canadian chartered bank will accelerate to March 5. That loan is guaranteed by certain assets of Golden Gate Fields and Santa Anita Park.

In a separate release, MEC said substantially all of its other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless MEC is able to obtain waivers, modifications or extensions.

"In the event MEC is unsuccessful in its efforts to raise additional funds, through an alternative transaction with MID, assets sales, by taking on additional debt or by some other means, MEC will not be able to meet such obligations," the MEC release said.

As of Feb. 18, there is approximately $48.5 million outstanding under the first tranche of the new loan, approximately $700,000 outstanding under the second tranche of the new loan, and approximately $126.2 million outstanding under the bridge loan, MID reported.

Both MID and MEC gave "caution" to shareholders and others considering trading in securities of the companies, saying "there can be no assurance that any alternative transaction ... will be completed."

The proposal was criticized by some shareholders, including in a recent letter filed with the Securities and Exchange Commission by Greenlight Capital.