01/26/2010 12:00AM

Zayat files countersuit against Fifth Third


LEXINGTON, Ky. - Ahmed Zayat, a leading racehorse owner whose bank sued him for $34 million for allegedly defaulting on loans, has countersued and is fighting the bank's effort to appoint a receiver for his racing stable.

In court documents filed Jan. 22, Zayat alleges Fifth Third Bank engaged in "a long-standing pattern of misleading, deceptive, and predatory lending practices" and, "through a host of empty promises and without regard for Zayat Stables' rights, the bank, its senior officers, and representatives manipulated and positioned Zayat Stables for financial ruin."

U.S. District Judge Karen Caldwell has scheduled a hearing for Feb. 8 on Fifth Third's motion to appoint a receiver for Zayat's stable. The bank says a federal equity receiver is necessary to manage Zayat Stables' daily operations, conserve the stable's assets, and protect the bank's security interest in the horses Zayat used as collateral in taking out a series of loans.

In court documents, the bank alleges Zayat expects to experience a cash flow shortfall "of close to $4 million as of December 31, 2009, and of nearly $3 million as of December 31, 2010," and that Zayat has lost more than $42 million of personal funds he invested in the operation of Zayat Stables and "is unwilling to fund the projected cash flow shortfall." The bank says a receiver is necessary to ensure the horses' feed and training costs will be paid and to monitor the horses in Zayat's far-flung stable.

Zayat's court filings opposing the receiver include a series of written verifications from trainers and farm owners that his horses are "properly fed, groomed, and maintained." Zayat also says he has arranged $5.2 million in "outside funding" with which to run his stable.

Zayat says Fifth Third gave "verbal and written assurances that Zayat Stables' loans with the bank would be restructured and re-amortized in order to give Zayat Stables the time it needed to implement its business model, i.e., to successfully train, race, and then ultimately sell its horses at their economic peak." But when Fifth Third closed down its equine lending department, Zayat says, a second bank appointed to aid Fifth Third's transition from that business "repudiated each and every one of its predecessor's commitments and assurances to Zayat Stables and imposed a lending structure that would doom the company."

Zayat ended 2009 as the fourth-ranked owner by earnings, with more than $6.3 million, according to National Thoroughbred Racing Association statistics.