05/03/2009 11:00PM

Magna focuses on sale of two tracks

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Magna Entertainment Corp., the bankrupt racing company, will seek to sell Santa Anita Park in Southern California and the racing assets of Lone Star Park in Texas in a bid to become solvent, the company said in court filings just prior to a hearing in bankruptcy court on Monday.

The court filings indicate that Magna is no longer considering an auction of many of its racing properties, including Gulfstream Park in Florida, Golden Gate Fields in Northern California, and Laurel Park and Pimlico Race Course in Maryland, though Magna's attorneys say that the company will continue to consider private offers for the tracks. Instead, Magna is hoping that an auction of Santa Anita and Lone Star - along with three minor tracks it had been attempting to sell for several years - will raise enough cash to retire some of its crippling debt and provide a way out of bankruptcy.

A Delaware bankruptcy court approved the plan at the Monday hearing. Under the plan, parties interested in bidding on any of the properties would need to submit expressions of interest by May 27 and formal bids by July 31. The auction would be held on Sept. 8 in New York.

The focus on Santa Anita and Lone Star is a sharp reversal from the plans Magna announced when it filed for bankruptcy on March 5. At that time, Magna had said that it would conduct two different auction processes for its properties, including an auction in which its parent company and largest creditor, MI Developments, would be allowed to submit the first bid for a bundle of properties that included Gulfstream, Golden Gate, Lone Star, its bet-processing company AmTote, and its account-wagering company XpressBet. Officials of MI Developments also said initially that they would consider bidding on other assets that Magna offered at auction.

In the court filings on Friday, however, MI Developments said that it has "confirmed in writing its intention not to bid on any of the assets," citing the objections of several of its shareholders.

"The debtors believe that such confirmation will promote an open auction process designed to ensure that the ultimate sale of the assets will generate a value that has been sufficiently tested by the market," Magna's bankruptcy attorneys wrote in the court filing.

Critics of the initial plan had contended that MI Developments's participation in the auction would scare away investors, while others also objected to what appeared to be a transfer of Magna's assets to MI Developments at cut-rate prices. Because both Magna and MI Developments are chaired by Frank Stronach, the transfer would be a way for Stronach to retain control of the tracks without testing the market for potential buyers.

Magna owes MI Developments $370 million, and its $195 million stalking-horse bid included debt forgiveness of $134 million.

It is unclear what price Santa Anita, Lone Star, and the other racetracks - Remington Park in Oklahoma, Thistledown in Ohio, and Portland Meadows in Oregon could bring at auction. Magna purchased Santa Anita in 1998 for $126 million and Lone Star in 2002 for approximately $100 million, but the racing industry and the real-estate market have undergone significant changes since then. Lone Star could bring a premium, depending on whether a buyer believes that slot machines will be legalized at Texas racetracks in the next several years, but Santa Anita's value remains somewhat static because of community opposition to the development of the track. Magna has been seeking buyers for the other three tracks for two years and has found no takers.

The plan to limit the auction to the five tracks will not preclude Magna from seeking to sell other racetracks in its portfolio. According to the court filings, Miller Buckfire, Magna's bankruptcy advisory firm, "will continue to explore all alternatives with respect to the remaining assets." A number of companies in Maryland have already expressed an interest in purchasing Laurel Park and Pimlico Race Course, the site of the second leg of the Triple Crown, the Preakness Stakes, and Magna said in the court filing that Miller Buckfire has distributed "approximately 70 confidentiality agreements to interested parties" in the Maryland properties and its other assets.