10/13/2009 11:00PM

Judge reopens bidding for Lone Star Park

Email

A U.S. bankruptcy judge on Wednesday approved a request by the unsecured creditors' committee of Magna Entertainment Corp. to reopen an auction for the operating assets of Lone Star Park in Texas, Magna's bankruptcy attorney said.

Judge Mary Walrath of the U.S. Bankruptcy Court in Delaware approved the request after Magna informed the court that Penn National Gaming Inc., a racetrack and casino company, had offered to buy the operating assets of the track for $40 million in the past week. The new auction will be held on Oct. 23, according to Brian Rosen, Magna's bankruptcy attorney.

Magna had accepted a bid of $27 million for Lone Star during an Oct. 7 auction from Global Gaming Solutions, a company owned by the Chickasaw Nation of Oklahoma, according to papers filed in the court by Global Gaming. However, in a petition to the judge to re-open the bidding that cited the $13 million difference between the Penn National and Global Gaming bids, Magna's unsecured creditors' committee said that Penn National was not given a fair chance to submit its bid prior to the auction and that it wanted the bidding to be re-opened.

"The committee supports the debtors' proposal to adjourn the sale hearing and to reschedule an auction," the filing said. "These steps would permit the debtors to maximize the value of an important asset, would be consistent with the flexibility built into the bid procedures ..., and would be consistent with the original expectations of both parties."

The move by the judge was a blow to Global Gaming, which had filed a document on Wednesday morning asking the judge to approve its $27 million bid despite the motion by the creditors' committee. In the document, Global Gaming said that Magna's counsel had informed the company about the Penn National bid on Tuesday afternoon. Global Gaming also contended that Penn National did not comply with rules the court approved to govern the auction, though the creditors' committee disputed those allegations.

Magna purchased Lone Star's operating assets in 2002 for $99 million. The value of the stake has eroded because of persistent declines in handle and attendance at Lone Star that have eaten into the track's revenue streams.

Global Gaming has already reached an agreement to buy Magna's Remington Park in Oklahoma City for $80.25 million. The court approved that sale in September. The Chickasaw Nation already operates 13 casinos in Oklahoma. Officials for the Chickasaw have said that they are seeking Lone Star in order to protect their casinos in Oklahoma and in case slot machines are legalized in Texas. In addition, the officials have said, the tribe wants to capitalize on the racing circuit between Remington and Lone Star, which both run Thoroughbred and Quarter Horse meets.

Global Gaming officials did not return phone calls on Wednesday.

The Lone Star dispute was one of three significant topics to go before the judge on Wednesday. Also at the hearing, Magna asked the judge for a $26 million loan from its parent company and largest creditor, MI Developments. In addition, Magna was seeking approval for auction procedures for its tracks in California, Santa Anita Park and Golden Gate Fields; its Maryland tracks, Laurel Park and Pimlico Race Course; and two Florida properties, Gulfstream Park and Palm Meadows Training Center.

Judge Walrath ruled on Wednesday that Magna could immediately draw down $2 million of the $26 million loan request, according to Rosen. The remainder of the loan may be made available on Oct. 28, Rosen said, after Walrath has had the time to review documents regarding the loan.

Magna said in court papers that the $26 million loan would enable the company to continue operating and avert "a liquidity crisis in mid-late October that will impair the debtors' ability to continue operations."

MI Developments provided Magna with a $38.4 million loan just after the company filed for bankruptcy in March. In the motion asking for approval for the additional $26 million, Magna's bankruptcy advisors, Miller Buckfire, said in the motion that they had sought financing from other companies, but those companies would not agree to loan Magna money if the debt was subordinate to MI Developments's loan. Magna also owes MI Developments an additional $371 million for loans the company provided to Magna prior to the bankruptcy filing.

The new loan has conditions attached to it that are tied to Magna's plans to offer all of its remaining properties at auction. Under the plan, unless Magna has asked the judge to approve agreements to sell Santa Anita, Golden Gate Fields, Gulfstream, Laurel, and Pimlico by March 31, 2010, at the latest, the company will be considered to be in default on the loans, the filings said. In addition, Magna will also be required to have asked the court to approve sales of its properties for a total of at least $175 million by that date.

According to Rosen, Judge Walrath approved bidding procedures for the Maryland tracks that will require bidders interested in Laurel and Pimlico to submit offers for the tracks by Nov. 2. An auction would be held on Jan. 8, Rosen said.

So far, several real-estate developers in Maryland have expressed interest in the tracks. The procedures also included a request by Magna that bidders keep the Preakness Stakes in Maryland, in part to satisfy the state and local legislators who have voiced concern over the bankruptcy and its impact on the second leg of the Triple Crown.

Judge Walrath postponed taking action on any approvals for auction procedures for the other tracks, according to Rosen, so that auction procedures for the Maryland tracks could be established first. Magna was seeking to require bidders interested in Santa Anita, Gulfstream, and Golden Gate to submit offers by Feb. 10. The company wants auctions to be held for the properties on Feb. 25, the company said in its motion.