09/12/2007 11:00PM

For-sale sign up on Magna tracks

EmailMagna Entertainment Corp. will attempt to eliminate more than half a billion dollars in debt by the end of next year by selling racetracks and exploring partnerships for several real-estate projects and other assets, company officials said on Thursday.

Thomas Hodgson, a consultant hired by Magna to evaluate the company's assets, said during a conference call Thursday afternoon that no property owned by Magna was off limits for a possible sale. Hodgson called the plan "ambitious."

Magna has $650 million worth of debt, and its market capitalization - the amount of money that investors believe that Magna is worth - is $263 million, using the price at which the company's stock closed on Thursday.

"Let me repeat the key word here: eliminate," said Hodgson, a former chief executive of the company. "Not reduce debt, eliminate debt."

The plan was approved unanimously by Magna's board on Wednesday night, according to company officials. Magna, the country's largest racetrack operator, has lost $350 million over the past three years after investing hundreds of millions of dollars in the purchase of racetracks and related real estate that have failed to realize any significant returns.

Magna was founded in 1998 by Frank Stronach, the auto-parts manufacturer who is also a successful horse owner and breeder. The company owns some of the country's best known racetracks, including Santa Anita Park and Golden Gate Fields in California, Gulfstream Park in Florida, and Laurel Park and Pimlico Racecourse in Maryland. The company also owns the operating assets of Lone Star Park in Texas but not the property itself.

Initial plan to sell

In order to quickly reduce debt, the company's initial plan is to sell undeveloped real estate in Ocala, Fla.; Dixon, Calif.; and Porter, N.Y.; seek partnerships for its existing tracks and real-estate projects; and sell racetracks that are losing money.

Magna had earlier announced that the company was seeking buyers for Thistledown in Cleveland, Ohio; Great Lakes Downs in Michigan; and its interest in Portland Meadows near Seattle and offtrack betting parlors in Oregon. All three operations have lost money over the last several years, and the value of the tracks as racing operations or as real estate is questionable.

"While these properties are valuable, the sale will not get us to our objective of eliminating debt," Hodgson said, referring to the tracks and real-estate properties.

Magna officials did not respond to specific requests for comment during the conference and did not return phone calls afterward.

It is unclear what Magna's plan will be if the company cannot eliminate its debt by the end of 2008. In the financial statements released by the company over the past three quarters, Magna's auditors have said that the company cannot continue without significant improvement in its operating results.

Hodgson said during the conference call that Magna will likely seek buyers for Remington Park in Oklahoma City, where slot machines that were installed in 2005 have turned the track from a money-loser into a profitable operation. Golden Gate Fields is also believed to operate at a profit, as is Santa Anita Park.

Poor showing at Gulfstream

By far the biggest disappointment among Magna's properties has been Gulfstream Park in Hallendale Beach, Fla., where the legalization of slot machines last year was expected to dramatically improve the track's operating results. The company has invested a half-billion dollars in the project, including the demolition and rebuilding of the track and a new casino as well as the construction of a $140 million training center in nearby Boynton Beach. The slot machines at Gulfstream have so far failed to generate revenue close to Magna's projections, and the Florida operations are expected to post a significant loss in 2007.

As part of the plan approved by the board, Magna will issue $20 million in stock to a company controlled by Stronach, which will give the company 7 percent of Magna's stock at Thursday's closing price of $2.23. Magna will also receive an $80 million loan from its parent company, Magna Developments, that will bear interest at more than 15.5 percent a year.

Hodgson said that Magna needed the $100 million immediately to meet its current financial obligations. The $80 million loan will come due on May 31, 2008, and if it is not repaid, the interest rate will increase 1 percent.