04/18/2004 11:00PM

Deal with Churchill unravels


A proposed deal that would give Churchill Downs Inc. control of Fair Grounds Race Course in New Orleans has all but unraveled, according to a bankruptcy lawyer involved in the case. Barring a last-gasp agreement, Fair Grounds was expected to file a reorganization plan that will lead to an auction of the property in bankruptcy court.

The reorganization filing was due on Monday. Douglas Draper, the bankruptcy attorney, estimated that bankruptcy proceedings could begin in 90 to 120 days.

The proposed deal involved three parties, and an accord was reached last week between two of them, Churchill and the Louisiana Horsemen's Benevolent and Protective Association. Negotiations shifted late last week to talks between Churchill and Fair Grounds, but they could not strike an agreement.

Under the terms of the agreement between Churchill and the Louisiana horsemen's group, Churchill would have paid $45 million for the financially troubled track, $33 million of which would have gone to the horsemen. Fair Grounds, the loser of a longstanding lawsuit concerning the distribution of profits from video poker terminals, owes the horsemen's group $89.9 million. The track filed for bankruptcy last spring to protect itself from that judgment.

But the remaining $12 million of Churchill's offer would not be sufficient to pay off all of Fair Grounds's creditors, according to Draper. Draper said $6.1 million had been budgeted to repay secured creditors, and the remaining funds would be insufficient to repay unsecured creditors.

"We recognize our duty to the creditors and shareholders," Draper said on Monday. "We're proposing a plan that sets up an auction with money being distributed solely with the bankruptcy code priorities."

Representatives from Churchill and the Louisiana horsemen declined comment Monday.

Another sticking point apparently was reluctance by Fair Grounds to waive any outstanding court appeals, a point stipulated by the Churchill proposal. Fair Grounds has a standing appeal concerning the judgment amount and has sued the state of Louisiana, contending the track followed the state's directions in taking deductions from video poker machines.

Negotiations among buyers, Fair Grounds officials, and the horsemen's group can continue, but the acceptance of an offer lies in the hands of the court. Churchill will have another opportunity to acquire the track, and Fair Grounds can work to partner with a potential bidder. Bryan Krantz, president and general manager of Fair Grounds, has said he wants to try to maintain control of the track.

The $45 million offer was the second made by Churchill. Louie Roussel, a former Fair Grounds owner, also made an offer, and several other groups are said to have made inquiries about acquiring the track.