04/19/2004 11:00PM

Churchill remains major player in sale

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As expected, bankruptcy attorneys for Fair Grounds filed a reorganization plan early Monday evening that will pave the way for an auction of the track in bankruptcy court. The filing nixed Churchill Downs's offer last week to acquire the financially troubled racetrack, but Churchill could still emerge as a central player when the track is auctioned off.

The reorganization filing in some ways clarifies the track's messy financial situation, but the overall picture remains murky.

A proposed trilateral deal among Churchill Downs Inc., the Louisiana Horsemen's Benevolent and Protective Association, and Fair Grounds is dead, with negotiations between Fair Grounds and Churchill at an impasse. But Churchill still has a chance to acquire the track through the bankruptcy auction, and might even go into the process as the lead bidder.

In the auction, Churchill could wind up as a so-called "stalking horse," a prospective buyer with a known bid. Churchill offered a total of $45 million in its deal with the Louisiana HBPA, with $33 million to go to the horsemen. Fair Grounds owes the HBPA $89.9 million as a result of a court ruling concerning the distribution of profits from video poker terminals.

Other potential buyers can file bids against the stalking horse. The bid accepted by the court won't necessarily be the one with the highest monetary value, but it will offer the most satisfactory outcome for creditors and the debtor, Fair Grounds. Creditors fall into two categories, secured and unsecured. Secured creditors must be paid first, but Fair Grounds's largest creditor - the Louisiana horsemen - is an unsecured one.

Douglas Draper, a bankruptcy attorney working on the case, said Tuesday that it had not yet been determined whether Churchill, the high bidder to date, would serve as a stalking horse. The bankruptcy auction could also take other shapes, with the various interested parties each submitting bids without the presence of a stalking horse.

Fair Grounds, if it partners with a prospective buyer, could be among the bidders. Bryan Krantz, president and general manager of the track, has repeatedly stated his intention to try to maintain control of the track.

Draper said the plan included a provision through which a neutral third party would evaluate the status of Fair Grounds's standing legal claims should the track change hands in bankruptcy court. Fair Grounds has appealed the judgment amount, and has filed a suit contending that the state, through faulty directives, bears responsibility for the judgment. The deal proposed by Churchill and the horsemen would have voided those claims.