06/24/2010 11:00PM

Zayat Stables and bank reach settlement


LEXINGTON, Ky. - Thoroughbred owner Ahmed Zayat announced Thursday that his Zayat Stables has agreed to a settlement with Fifth Third Bank that would mutually resolve lawsuits the parties had filed against each other.

Zayat "has determined that a global resolution and restructuring outweighs the costs and uncertainty associated with protracted litigation with Fifth Third," according to documents Zayat's attorney filed Thursday afternoon in a New Jersey bankruptcy court.

Fifth Third attorney Craig Robertson could not be reached for comment.

The court documents reveal that Zayat and Fifth Third recently engaged in "extensive negotiations" over Zayat Stables' debts to Fifth Third and have agreed "to a restructuring of the Fifth Third loan and releases of all claims among parties."

The settlement must be approved by the court.

According to court documents, the settlement will require Zayat Stables to pay an accrued interest payment of $623,201 and a principal reduction payment of $5,476,798 on or before June 30, the date the settlement is scheduled for a hearing in the Newark, N.J., court, though Zayat's attorneys have applied to have the settlement approved earlier. Payments will come from an escrow account, and, after those payments are made, the outstanding principal balance due will be $28,152,242.

Under the restructuring agreement, Zayat Stables will then pay Fifth Third 40 percent of proceeds from horses sold in 2011 up to $10 million; 50 percent of proceeds from horse sales that year in excess of $10 million; and 40 percent of proceeds from claiming races that year in excess of $495,000. The stable must make a minimum principal payment of $4 million in 2011, including the sale and claiming income.

The agreement calls for principal payments in 2012 equal to 50 percent of sale proceeds and 50 percent of claiming race proceeds that year, and totaling $3.25 million; in 2013, a minimum principal payment totaling $3.25 million, including 50 percent of sale proceeds and claiming races for the year; and in 2014, a balloon payment of the loan balance by the maturity date of December 31, 2014.

Zayat Stables bloodstock will continue to serve as collateral.

Zayat said in a release that he is "extremely pleased and satisfied" with the terms of the proposed settlement.

"Zayat Stables will come out of this is a stronger financial position than ever, and it will allow us to devote all of our energies to what is most important: nurturing, developing, and racing the next generation of great American horses."

The settlement will be considered on June 30 in a bankruptcy court hearing. Zayat Stables filed for bankruptcy in February, two months after Fifth Third sued the stable in a U.S. District Court in Lexington for allegedly defaulting on about $34 million in a series of loans from Fifth Third. Zayat countersued, alleging fraudulent and deceptive lending practices by the bank.

Earlier this month, the District Court lifted a stay, allowing Fifth Third to pursue Ahmed Zayat and an affiliated entity, Pioneer of the Nile Ltd., as guarantors of the loans. Zayat's Thursday release said that the pending settlement also covered "all related matters regarding Zayat Stables owner Ahmed Zayat and Pioneer of the Nile."

If the settlement is approved, Zayat's release said, the bank would vote in favor of a reorganization plan Zayat has filed in the bankruptcy court. That plan is slated for a hearing in the Newark bankruptcy court on July 15.

In the Thursday release, Zayat also said that he maintains "a significant interest" in Eskendereya, and that he and partner Jess Jackson "are planning where Eskendereya will stand" at stud. Jackson privately purchased an interest in the colt in May.