01/04/2007 12:00AM

New York tries to block NYRA bankruptcy

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The state of New York has filed a motion in federal court to dismiss the New York Racing Association's request for protection under Chapter 11 bankruptcy.

The motion, filed by the state attorney general's office on Dec. 29, asks Judge James M. Peck of U.S. Bankruptcy Court for the Southern District of New York to dismiss NYRA's case because "NYRA is not eligible to be a debtor under the bankruptcy code and therefore the court does not have jurisdiction over the case." The 43-page motion argues that NYRA is an "instrumentality" of the state and a "public agency" and is not eligible to seek protection.

A hearing has been scheduled for Jan. 19 to hear the state's argument. The motion was co-written by the New York State Non-Profit Racing Association Oversight Board, which was created in 2005 by the state legislature as a regulatory body to oversee NYRA.

NYRA, a nonprofit company formed in 1955 that is heavily regulated by the state, filed for bankruptcy on Nov. 2 and later sued the state, contending that the association was insolvent in part because of the state's failure to provide loans that had been approved by the legislature, and asserting that the approval for a slot-machine casino at its Aqueduct racetrack was being intentionally delayed. NYRA is the operator of Aqueduct, Belmont, and Saratoga Racecourse under a franchise agreement that expires at the end of this year.

NYRA's bankruptcy filing came three weeks before a state panel ranked the proposals of two private partnerships, Excelsior Racing Associates and Empire Racing Associates, far ahead of NYRA's in the effort to win the franchise in 2008.

NYRA is due to appear before Judge Peck on Tuesday, when it is expected to request approval of a $50 million loan from a hedge fund under "debtor-in-possession" terms. Several groups, including the state and the New York Thoroughbred Horsemen's Association, have filed objections to NYRA's request to obtain the financing.

The horsemen's motion asks Peck for declaratory judgments that NYRA not be able to use any funds owed to horsemen - either in accounts held in trust or in a fund that will be used to make up purse shortfalls - as collateral against the financing. In the motion, the horsemen contend that NYRA has been using some of the funds that are due to be distributed to purses for its operating expenses.

The motion asks the court to recognize the horsemen's association as the official representative for horsemen during the case.

"All we are doing is seeking clarification," said Alan Foreman, the general counsel for the horsemen's group. "It's a pretty limited objection. NYRA's bankruptcy motion did not make clear what funds would be used to secure its loans, and we want to make sure that the horsemen's money is protected."

The state's objection is based on NYRA's contention in its bankruptcy motion that the association owns the three racetracks and therefore can use the properties as collateral. The ownership issue has been one of considerable debate between the two parties, and a decision in favor of NYRA could radically complicate any plan to award the franchise to another group.

Bill Nader, a NYRA senior vice president, said Thursday that the immediate impact, if any, of the objections to NYRA's request for the $50 million loan would be for the association to delay its request. Nader said that NYRA's attorneys were still reviewing the motions filed by the state and the horsemen.

A day after filing for bankruptcy, NYRA received an $8 million loan from the state so that it could continue to fund operating expenses as it organized under Chapter 11. Nader said that loan would likely be able to keep the association operating into February.