11/03/2006 12:00AM

NYRA receives loan to continue operating


The New York Racing Association on Friday received an $8 million loan from the state comptroller's office in order to continue to fund its operations while it reorganizes under Chapter 11 bankruptcy protection, a NYRA official said on Friday.

The loan was released in a separate action after Charles Hayward, NYRA's chief executive, and Patrick Kehoe, NYRA's general counsel, appeared before Judge Arthur Gonzalez on Friday in bankruptcy court for the Southern District of New York. They were seeking approval for a line of credit from a New York hedge fund, but Gonzalez did not rule on the line of credit because another judge, Arthur Peck, is assigned to the case, Nader said. NYRA officials will appear before Peck on Wednesday, according to Nader.

Nader said that the loan from the comptroller's office, which will bear interest at 4 percent per year, will fund NYRA's continuing operations through 2006.

"This will keep us going," Nader said.

NYRA filed for bankruptcy protection in U.S. District Court on Thursday, contending that the cumbersome structure of Thoroughbred racing in New York and "interference" by state agencies had pushed the association to insolvency.

NYRA officials have stressed that the filing would have no material impact on the association's ability to operate its tracks, pay purses, or maintain its payroll. On Friday morning, NYRA officials met with trainers on the Aqueduct backstretch to explain the decision.

"It was a short and sweet meeting," said Richard Violette, a trainer who is the vice president of the New York Thoroughbred Horsemen's Association. "The assumption is that it is going to be business as usual. That's the hope. Delta [Airlines] went bankrupt, and they didn't miss one flight. So we're hoping it's the same thing with NYRA."

NYRA operates Aqueduct, Belmont, and Saratoga under a franchise agreement with the state that expires on Dec. 31, 2007. Last week, NYRA officials turned down an offer from a state oversight board for a $19 million loan, claiming that the conditions on the loan were unsatisfactory.

Nader said that NYRA was hoping on Wednesday to get the bankruptcy court to approve a $50 million line of credit from SB Capital, a New York hedge fund, as part of its bankruptcy reorganization plan. SB Capital, an affiliate of Schottenstein, is an international financial services company with an office in New York.

Over the past several months, as the association contemplated the bankruptcy filing, NYRA officials had met with hedge fund managers about the possibility of securing a loan should the association seek Chapter 11 protection.

NYRA officials have contended for two months that the association would file for bankruptcy if the state did not approve either its plans for a casino at Aqueduct or the release of the $19 million, which was part of a $30 million loan package approved by the legislature late last year.

In its petition filed with the court, NYRA said that it has assets of $153 million and liabilities of $310 million. Among its largest creditors is the Pension Benefit Guaranty Corp., which is owed $12.4 million, according to the petition; MGM Grand, which is owed $5.7 million, and Television Games Network, which is owed $4.3 million. The state's lottery corporation and the Empire State Development Corp. are listed as being owed $6 million and $5 million, respectively, because of loans provided last year. (Daily Racing Form LLC is a creditor of NYRA.)

According to Nader, NYRA also has $20 million in unpaid real-estate taxes.

In the petition, NYRA states that deposits by NYRA One account holders represent liabilities. Nader said Friday that those deposits were "safe" and that the accounts would not be subject to any claims.

The bankruptcy filing is likely to further complicate an already complex political situation revolving around NYRA and its franchise. The association is one of three groups that have submitted bids to operate the three tracks and the Aqueduct casino for 20 years beginning in 2008 under a request for proposals issued by a state committee.

Scott Reif, a spokesman for the committee evaluating the bids, said that to his knowledge the bankruptcy filing would not affect the committee's work beyond what was already known when the bids were submitted.

Reif, who is also a spokesman for Gov. George Pataki, also released a statement from Pataki's office that sought to dispel NYRA's criticism of the state.

"It goes without saying that the state did everything possible to assist NYRA in overcoming their ongoing fiscal challenges, including providing them with nearly $300 million in grants, loans, subsidies, and access to private sector capital," the statement said. "In the end, NYRA refused to help itself."

NYRA officials have principally cast blame for the association's ongoing financial problems on the lottery corporation's pending review of a management contract with MGM Grand for the Aqueduct casino. Of the nine racetracks to receive approval for slot machines, only the Aqueduct casino is not operating. The lottery corporation has said that the review of the contract is under way.

The Aqueduct casino is expected to be the highest-grossing casino on the East Coast. In 2005, legislation was passed that protected MGM's contract should NYRA lose its franchise. The two other bidders for the franchise, Empire Racing Associates and Excelsior Racing Associates, both include partners that operate casinos.

It is unclear what would happen to MGM's contract if a bidder other than NYRA is selected prior to the casino management deal being approved by the lottery corporation.

The bankruptcy filing has the potential to resolve a dispute between NYRA and the state regarding the ownership of the three tracks. NYRA has contended that it owns the tracks, while the state has said that they are assets of the state.

"Hopefully, [the bankruptcy court] will resolve it," Nader said. "That might be a great outcome, because it might finally provide an answer to a question that has been knocked around over the past year without even a hint of a resolution."