03/30/2008 11:00PM

Magna debt may be shifted to new company


MI Developments, the controlling stakeholder in the troubled racetrack company Magna Entertainment, is considering a shareholder proposal calling for the company to sell its equity in Magna Entertainment and transfer more than a $100 million of loans to a new limited-liability partnership, the company announced on Monday.

Under the proposal, which the company said is supported by a majority of its shareholders, MI Developments would sell its 62.8 million shares in Magna Entertainment for $25 million to an unidentified party selected by the founder of both companies, Frank Stronach. MI Developments would also transfer $150 million in cash and debt to the new limited-liability company, which would be controlled by Stronach. The debt is held by Magna Entertainment.

The proposal seeks to address concerns by many shareholders of MI Developments that its involvement with Magna Entertainment has damaged the company. MI Developments owns land and buildings that are leased to Magna Entertainment and a related company, Magna International, an auto-parts manufacturer that was also founded by Stronach. Under the proposal, MI Developments would be prohibited from entering into any business transactions with Magna Entertainment without a unanimous vote from its board of directors.

Magna Entertainment has lost more than $500 million over the past four years and its stock has plummeted since the middle of 2007, when company officials said that they were searching for buyers for some its racetracks. The company had nearly $600 million in total debt at the end of 2007, and $180 million of its loans are due by the end of May. The company does not currently have the cash to repay those loans.

Stock in Magna Entertainment closed Monday at 34 cents, up 2 cents for the day. Stock in MI Developments closed at $28.93, up 14.5 percent.

The sale of MI Developments’s shares in Magna Entertainment works out to about 39.8 cents per share, above Magna’s closing price. MI Developments would own 49 percent of the new company, and that company would be liable for any potential losses if the loans cannot be repaid.

Magna Entertainment officials did not return phone calls on Monday. MI Developments will call a special meeting of its shareholders by May 30 to vote on the plan.