11/26/2008 12:00AM

Magna Entertainment to spin off from parent


Magna Entertainment Corp., the struggling owner and operator of nine U.S. racetracks, will be spun off from its parent company, MI Developments, and was issued additional loans under a proposal that MI Developments's shareholders will be asked to approve early in 2009, the companies announced Wednesday.

The plan seeks to satisfy shareholders of MI Developments who have criticized the performance of the company because of the financial drag created by Magna, which has lost $400 million over the past four years and has failed to pay off $550 million in debt - $250 million of which is held by MI Developments. If the plan is approved, and Magna satisfies all of the conditions under the proposal, MI Developments would be completely divested of the racetrack company.

Under the proposal, Magna will receive an immediate loan of $50 million from MI Developments to fund its operations through the first quarter of 2009. In addition, Magna will receive another $40 million loan to pursue a license for a slot-machine operation in Maryland, where the company owns Laurel Park and casinos were authorized for five yet-to-be-determined locations in a November referendum.

Magna has also received a commitment of $30 million from MI Developments to build a temporary casino at Laurel if its pursuit of the license is successful - not a given considering it is competing against casino and real-estate development companies.

Aside from the loans, however, it is unclear how the proposal will benefit Magna Entertainment over the long term. At best, the proposal gives the company additional time to pursue sales of its racetracks and the Maryland slot-machine license, but it would sever ties with the company that has provided financial lifelines as Magna has struggled to make ends meet.

At the close of trading on Wednesday, Magna's stock was up 43 percent, or 60 cents, to $2.01. Stock in MI Developments was up 19 percent, or $1.62, to $10.05.

Under the proposal, Magna Entertainment would be required to sell several non-racing real-estate properties in Florida and California to MI Developments at "fair market value," transactions that the companies said would raise $100 million to $120 million for Magna. Cash from the sales would be used immediately to pay off a $40 million debt that Magna owes to the Bank of Montreal in Canada and a $4.5 million note owed on its bet-processing company, AmTote. The Bank of Montreal debt was scheduled to come due on Friday, but the bank has agreed to extend the maturity date to March 16, 2009.

If the shareholders of MI Developments approve the plan, Magna will still owe MI Developments $250 million and its other debt holders more than $200 million - even if the remainder of the revenue from the non-racing real-estate sales is used to pay down the existing debt. Those debts would begin to come due at the end of next year under extensions Magna will receive from MI Developments under the proposal.

According to the companies, Magna is expected to raise cash in the meantime by trying to sell its racing assets, with all proceeds from any sales being used to pay off either MI Developments or the other long-term debt holders.

Magna owns Santa Anita Park and Golden Gate Fields in California; Gulfstream Park in Florida; Laurel Park and Pimlico Racecourse in Maryland; Remington Park in Oklahoma; Portland Meadows in Oregon; and Thistledown in Ohio. It also owns the racing assets of Lone Star Park in Texas, and is a partner with Churchill Downs Inc. in a television network, HRTV, and a simulcast-marketing company, TrackNet. In addition, the company owns AmTote and an account-wagering company, XpressBet.

Magna has been attempting to find buyers for Thistledown, Remington, and Portland Meadows for two years, but there have been no takers. Racing officials have also said that Magna has pursued joint partnerships in its other tracks.

The proposal does not make clear what would happen if Magna does not pay off its long-term debt.

Magna officials did not return phone calls on Wednesday.