The credit leash on financially beleaguered Magna Entertainment, owner of Pimlico Race Course and Laurel Park, just got a lot shorter.
The company's controlling shareholder, MI Development, is abandoning a reorganization plan that had been criticized by the firm's minority shareholders. As a result, the due date on about $275 million in debt owed by Magna Entertainment to MI has been accelerated to March 20.
Both Canadian-based companies are controlled by auto-parts magnate Frank Stronach.
In a statement, Magna Entertainment said that it will not be able to repay the loans unless it can raise money "through an alternative transaction with MI Development, asset sales, by taking on additional debt or by some other means." The due date on Magna Entertainment's $40 million line of credit with a Canadian bank has also been moved up, to March 5.
Because Magna Entertainment owns the two Maryland race tracks and the Preakness Stakes, the state's horse industry is in a constant state of unease about the future of the tracks and the second jewel of the Triple Crown.
It remained unclear what Magna Entertainment's options might be, particularly since it has been trying to refinance its debt with other sources and sell real estate without success.
MI Development has already granted Magna extensions a handful of times over the past year. Magna Entertainment hired a firm specializing in restructuring debt and Chapter 11 bankruptcy last fall.
"If by some circumstances they did file for Chapter 11, it could get pretty crazy," said Maryland Racing Commission Chairman John Franzone, "because then you're at the mercy of a bankruptcy trustee."
Officials for Magna Entertainment could not be reached for comment.
Tim Rice, a managing partner in a stock brokerage firm whose clients once owned Magna Entertainment stock, said that Magna has passed up opportunities to liquidate real estate holdings at reasonable prices in the past.
"I'm sure that [Stronach] would do whatever he can to [prevent] the public shareholders from getting wiped out," Rice said, "but I don't know if he can do that."
But Franzone expressed confidence that Stronach will find a way out.
"Frank is a pretty savvy guy. He's faced crises in his auto business over the years and he's always pulled rabbits out of his hat, so I wouldn't count him out," Franzone said.
Magna Entertainment has used MI Development as a lender of last resort in recent years, to the chagrin of some MI minority shareholders.
The proposed reorganization would have eventually severed the relationship, but was undercut when a vocal MI Development shareholder, New York-based Greenlight Capital Inc., complained that the plan would convert the company's secured loans into shares of Magna Entertainment stock.
Magna Entertainment shares closed at 38 cents yesterday.
Part of the money that MI Development lent to Magna was supposed to be used to develop a new slot machine casino at Laurel Park. But the company's effort to secure a slots license was derailed when it failed to put up millions of dollars in required fees when it submitted its bid this month.
State officials threw out the Magna bid last week. Lawyers for the track's owners have taken the matter to court. State Senate President Thomas V. Mike Miller said the state should work to ensure that the Preakness Stakes stays in Maryland and that horse racing remains viable here. He compared any effort to save the tracks to building a baseball stadium or granting tax incentives to Hollywood filmmakers who bring their sets here.
"If we have an interest in having movies filmed in Maryland," Miller said, "then we certainly have an interest in somehow finding a buyer for our racetracks."
Baltimore Sun reporters Hanah Cho and Laura Smitherman contributed to this article.