Magna hires bankruptcy advisory firm

Magna Entertainment Corp. lost $49.1 million in the third quarter of 2008 and has hired a bankruptcy advisory firm in the wake of hundreds of millions of dollars in losses over the past four years.

The third-quarter loss, $8.25 per share, brings Magna's total losses to $116.1 million through the first nine months of this year, or $19.87 per share, according to financial documents the company released on Wednesday night. The company has lost nearly $400 million over the past four years, and has $550 million in debt, $250 million of which was due earlier this year but has not been repaid.

In a statement accompanying the documents, Magna said it had hired Miller Buckfire & Co. "to review and evaluate various strategic alternatives including asset sales, financing, and balance-sheet restructuring opportunities."

On its website, Miller Buckfire describes itself as "delivering unbiased, strategic, and actionable advice to clients facing issues that are complex - and urgent." Most firms that Miller Buckfire is advising, according to its website, are currently in Chapter 11 bankruptcy proceedings or emerging from bankruptcy.

Revenue for the third quarter was static compared with last year: $81.6 million compared with $81.5 million in the third quarter last year. Interest expense in the quarter was $18.1 million.

Magna's financial problems harbor troubling possibilities for the already struggling racing industry. Magna owns several high-profile racetracks in prime real-estate locations, including Santa Anita Park in Arcadia, Calif; Gulfstream Park in Hallandale, Fla.; and Golden Gate Fields in Albany, Calif., just north of San Francisco Bay. Magna owns or operates 10 active racetracks and is the country's largest racetrack operator. It also co-owns a simulcast marketing company and horse racing television network with Churchill Downs Inc., and owns outright one of the three dominant U.S. bet-processing companies, AmTote.

Magna's options to relieve its financial pressures expanded on Tuesday when voters in Maryland passed a referendum authorizing 15,000 slot machines at five yet-to-be-determined sites, a list that could include Magna's Laurel Park in Anne Arundel County. The authorization will likely allow Magna to market Laurel and its sister track, Pimlico Race Course, to buyers interested in obtaining the casino license, and a sale could help Magna pay down its debt. The maturity dates on the debts that Magna has not repaid this year have been extended multiple times, and many of the loans are due on Dec. 1.

Magna officials did not return phone calls on Thursday. As of late Thursday, the company had not scheduled a conference call to discuss its third-quarter results, as is customary.

Magna's stock - which had surged earlier in the week on the expectation that the widely supported Maryland referendum would pass - declined 22.7 percent on Thursday to $2.86. Earlier this year, Magna approved a reverse 20-for-1 stock split, and the stock is now trading at 14 cents under the pre-split pricing.

Magna's difficulties are likely to attract attention from companies seeking racing and gambling assets at cut-rate prices, especially if Magna enters bankruptcy protection. One obvious candidate is Churchill Downs Inc., which has little to no long-term debt and a strong balance sheet that would enable the company to acquire loans despite the economy's tight credit conditions.

Robert Evans, Churchill Downs's chief executive officer, said on a Thursday morning conference call to discuss the company's third-quarter results that Churchill "will continue to pursue meaningful opportunities" for acquisitions, but Evans declined to identify any potential targets. He cited Churchill's strong balance sheet as an incentive to pursue acquisitions, especially for racing properties that have the authorization to conduct casino-type gambling.

Over the past two years, Magna has been attempting to sell three of its racing properties - Thistledown in Ohio, Remington Park in Oklahoma, and Portland Meadows in Oregon - but has not reached any deals. Remington Park is the only profitable track among the three, solely because of slot machines at the facility. It is unlikely that Magna will be able to find a buyer for the other tracks unless economic conditions for the horse racing industry substantially improve or casino-type gambling is authorized for the properties soon.

According to horse racing officials, Magna has been approached about deals to sell other racetracks over the past six months, but the company has stuck to conditions that were unacceptable to the buyers, such as limited partnerships in the tracks.