03/15/2009 11:00PM

Court approves Magna funding plan


A Delaware judge has approved a request by Magna Entertainment Corp. to borrow $13.4 million from its parent company to fund its ongoing operations as it reorganizes under Chapter 11 bankruptcy rules.

Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware approved the request after a hearing on Friday. The request will allow Magna Entertainment to continue operating its racetracks and other associated businesses despite the bankruptcy filing.

"Good cause has been shown for this order," Walrath wrote in her ruling. "An immediate and critical need exists for the debtors to borrow funds and/or obtain other financial accommodations. . . . The debtors do not have sufficient available sources of working capital or financing to carry on the operation of their businesses without the use of cash collateral and access to the financing" provided by the parent company, MI Developments.

MI Developments is Magna's largest debt-holder. According to the ruling, Magna owes the company $369 million.

Several large shareholders in MI Developments had objected to the company's plan to provide Magna with financing while reorganizing, but Walrath disregarded those objections in her ruling.

Magna filed for bankruptcy on March 5. At the time, MI Developments had agreed to provide Magna with $62 million in financing as it reorganizes. The $13.4 million is the first installment of that financing, provided the court approves additional allotments.

As part of the reorganization, MI Developments has agreed to take possession of Magna's Gulfstream Park, Palm Meadows Training Center, Golden Gate Fields, Lone Star Park, the bet-processing company AmTote, and the account-wagering company XpressBet. Under that transaction, which must be approved by the bankruptcy court, MI Developments will pay Magna $44 million, take over a $15 million lease, and forgive $136 million in debt. The deal can be matched by another company seeking the properties.

The Delaware court is next scheduled to hold a hearing on Magna's bankruptcy on April 3. At that time, the court will hear from any other parties who may be interested in bidding on the assets covered by the agreement between Magna and MI Developments.