Magna Entertainment Corp., the owner of Maryland's major thoroughbred tracks, announced plans yesterday to raise up to $700 million to pay off debt by finding partners in its gaming and racing operations and selling some assets, including property adjacent to Laurel Park.
The efforts are the culmination of a monthlong strategic review of the Canadian company's assets and operations and the latest initiative to turnaround the money-losing operations. The news follows previously announced sales of other properties and racetracks, including Thistledown in Ohio and Portland Meadows in Oregon.
For the past year, Magna has faced financial peril. An audit this year by Ernst & Young found that Magna's continuing losses and existing debt raises doubts about the company's ability to stay in business, according to documents filed with the Securities and Exchange Commission.
Calling yesterday's announcement an ambitious plan to eliminate their debt, Magna officials, who own and operate racetracks throughout the country, said they hope to make the changes by the end of next year. The company said the moves were approved unanimously by its board of directors.
Along with plans to sell assets and enter into joint ventures, Magna said it might issue new stock in the company next year to generate $600 million to $700 million.
Shares of Magna rose yesterday nearly 20 percent, or 37 cents, to close at $2.23 on the Nasdaq.
In addition to the Laurel Park property, Magna said yesterday that land to be sold includes parcels in Hallandale, Fla., and Austria as well as the Great Lakes Downs racetrack in Michigan. The company also said it plans to explore selling its interests in developments at Florida's Gulfstream Park and California's Santa Anita racetracks.
"I'm personally committed to the debt elimination plan," Frank Stronach, Magna's chairman and interim chief executive officer, said in a conference call with analysts.
"I've been frustrated in the past that we haven't moved faster to cut our debt and sell assets that are not core to [the company's] future," Stronach said.
To ensure Magna Entertainment will have the necessary cash flow to operate during the next 15 months, the company also will take out an $80 million short-term, nonrevolving bridge loan from MI Developments Inc., Magna's parent company.
Another $20 million
Another $20 million will come from the private placement of shares to Fair Enterprise Ltd., which is part of an estate planning group for Stronach's family.
"They asked me [as the largest shareholder] how much faith do you have in the company?" Stronach said.
The $100 million ensures that the company will not have to take "fire sale" offers for property it considers highly valuable, said Tom Hodgson, a former Magna chief executive and a senior partner at Greenbrook Capital Partners, who led the strategic review. Hodgson, who in a statement said the company was "at a crossroads," will oversee Magna's new efforts.
Magna also owns Laurel Park, Pimlico Race Course and the Preakness in Maryland. Executives had said in the past that those racetrack operations would be considered in the strategic review, but only the land near Laurel Park was included in yesterday's announcement.
Hodgson said during a conference call yesterday that the Laurel property was referenced primarily because "we're trying as a part of public disclosure to include everything." The exact location and acreage that could be sold is unclear and company executives would not provide details.
"That property and that discussion are at an extremely preliminary stage and we're not in position to comment on it now," Hodgson said.
Laurel Park is made up of two parcels, a 55-acre tract of vacant land on the east side of Brock Bridge Road in Anne Arundel County and the main 236-acre parcel that includes the horse-racing ovals, grandstands, parking lots and barn areas.
"I don't think the mention of a parcel of land for sale at Laurel should worry anyone," said Maryland Jockey Club President and Chief Operating Officer Lou Raffetto. "Regardless of future development of this facility there is going to be some excess land and I think that's the land they're talking about."
Last year, plans were announced for a mixed-use development on the Anne Arundel County side of Laurel Park that would have seen the 55-acre area developed as a new barn area.
A 64-acre parcel in Howard County, located west of the railroad tracks behind the grandstands, was sold this year to MI Developments for $20 million. No redevelopment plan has been submitted, according to Howard County's Department of Planning and Zoning.
Magna announced a review of its operations last month after a net loss of $23.4 million in the second quarter, which ended June 30.
At that time, Magna said it would immediately shed several of its assets.
They include ceasing racing operations at its Austrian racetrack Magna Racino at the end of the 2007 schedule, giving up its racing license for Michigan Downs in Romulus, near Detroit, and terminating its racetrack development project in Dixon, Calif. Assets to be sold included real estate in Ocala, Fla., and Porter, N.Y.
The company reported net losses of $87.4 million last year, $105.3 million in 2005 and $95.6 million in 2004, and it has an accumulated deficit of $417.3 million as of June 30, according to SEC filings.
Magna is carrying about $515 million in long-term debt and other liabilities as of June 30, according to SEC filings.