Magna Entertainment Files for Chapter 11 Bankruptcy Protection
March 05 2009 - 1:27PM
PR Newswire (US)
MI Developments to provide US$62.5 million DIP financing and act as
stalking horse bidder for certain MEC assets to protect its secured
loan interests AURORA, ON, March 5 /PRNewswire-FirstCall/ -- MI
Developments Inc. (MID) (TSX: MIM.A, MIM.B; NYSE: MIM) today
announced that Magna Entertainment Corp. and certain of its
subsidiaries (MEC) have filed voluntary petitions for relief under
Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court
for the District of Delaware. MEC's day-to-day operations are
expected to continue throughout the bankruptcy proceedings while
MEC undertakes a process to sell its assets and repay indebtedness,
including to MID. MID holds a controlling equity interest in MEC
and is the largest secured creditor of MEC. The current balance of
MID's existing loans to MEC, including accrued interest, is
approximately US$372 million, comprised of US$171 million under the
Gulfstream Park project financing, US$23 million under the
Remington Park project financing, US$125 million under the bridge
loan provided in September 2007, and US$53 million under the loan
provided in December 2008. All of these loans are secured. Dennis
Mills, MID's Vice-Chairman and Chief Executive Officer, stated, "We
are providing both the DIP financing and the stalking horse bid
with the intent of preserving the value of our secured loans to
MEC. The bid provides MID with the opportunity to acquire valuable
real estate assets with considerable redevelopment prospects that
we believe will create value for our shareholders." DIP Financing
MID, through a wholly-owned subsidiary, has agreed to provide a
six-month secured debtor-in-possession financing facility to MEC
(the DIP Financing) in the amount of US$62.5 million. A portion of
the DIP Financing will be used to fund interest and fees payable to
secured creditors, including an estimated US$26.2 million to MID.
If approved by the Court, the DIP Financing, combined with MEC's
cash flows from operations, should enable MEC to continue to
satisfy its obligations associated with the ongoing operations of
its business, including payment of employee wages and benefits in
the ordinary course, and payment of post-petition obligations to
vendors. The terms of the DIP Financing contemplate that MEC will
sell all its assets through an auction process and use the proceeds
from the asset sales to repay its creditors. The DIP Financing will
be secured by liens on substantially all assets of MEC, as well as
a pledge of capital stock of certain guarantors. Advances to MEC
under the DIP Financing must be made in accordance with an approved
budget. Stalking Horse Bid MID has entered into an agreement with
MEC to purchase MEC's relevant interests associated with the
following assets (the Stalking Horse Bid): Golden Gate Fields;
Gulfstream Park, including MEC's interest in The Village at
Gulfstream Park (a joint venture with Forest City); Palm Meadows
Training Center and excess lands; Lone Star Park; AmTote
International; XpressBet(TM); and a holdback note associated with
MEC's sale of The Meadows. MID's aggregate offer price for the
assets is US$195 million, with US$136 million to be satisfied
through a credit bid of MID's existing loans to MEC, US$44 million
in cash and US$15 million through the assumption of a capital
lease. Under the agreement, MEC will seek Court approval of a
process to market these and all other MEC assets, and MID's offer
may be topped by third parties during this auction process. MID
will not receive any termination fees if MEC sells any assets to a
third party, but may receive reimbursement for its expenses in
connection with the Stalking Horse Bid. MID has not made an offer
to purchase any other assets of MEC at this time, although MID will
continue to evaluate whether to do so during the course of the
Chapter 11 process. Post-Chapter 11 Operations; Forbearance
Agreement If MID acquires non-racing real estate assets from MEC in
the Chapter 11 auction process, MID would retain and develop these
assets. All horse racing or gaming assets would be segregated from
MID's real estate business and held in one or more new wholly-owned
subsidiaries of MID (Raceco). Subject to the outcome of the Chapter
11 auction process, (a) MID would retain the lands at Golden Gate
Fields and Gulfstream Park, the interest in The Village at
Gulfstream Park joint venture, and The Meadows holdback note, and
(b) Raceco would lease the racing and gaming facilities at
Gulfstream Park and Golden Gate Fields from MID pursuant to triple
net leases at fair market rent and would own the relevant interests
in Lone Star Park, AmTote International and XpressBet(TM). If MID
acquires the Golden Gate Fields property, it intends to immediately
commence seeking all required approvals to develop the property for
commercial real estate uses. On closing of the asset purchases, MID
would execute a forbearance agreement providing that, without the
prior approval of a majority of the votes of minority holders of
MID Class A Shares, MID would not (a) make any further debt or
equity investment in, or otherwise give financial assistance to,
Raceco or (b) enter into any transactions with, or provide any
services or personnel to, Raceco, except for (i) the triple net
leases referred to above and (ii) limited administrative and office
services. MID would also agree not to enter into any transactions
in the horseracing or gaming business except through Raceco. By
December 31, 2011, MID would either (a) if Raceco were pro forma
profitable and self-sustaining, sell it or spin it off to its
shareholders, or (b) otherwise, cease racing and gaming operations
at Raceco and either sell or develop all of Raceco's remaining
assets. Mr. Mills continued, "If we acquire any MEC racing assets
through this process, we are fully committed to segregating them in
a separate, self-funding subsidiary that would not require
financial support from MID and has a clear deadline for separation
from MID." MID Board Approval The Board of Directors of MID
approved the DIP Financing and the Stalking Horse Bid after
considering, among other things, a favourable recommendation from a
Special Committee of independent directors. The Board received
financial advice from GMP Securities L.P. and the Special Committee
received financial advice from Blair Franklin Capital Partners
Inc., including fairness opinions concerning the Stalking Horse
Bid. About MID MID is a real estate operating company focusing
primarily on the ownership, leasing, management, acquisition and
development of a predominantly industrial rental portfolio for
Magna International Inc. and its subsidiaries in North America and
Europe. MID also acquires land that it intends to develop for
mixed-use and residential projects. MID holds a controlling
interest in MEC, North America's number one owner and operator of
horse racetracks, based on revenue, and one of the world's leading
suppliers, via simulcasting, of live horse racing content to the
growing intertrack, off-track and account wagering markets. As
noted in this press release, MEC has filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code.
Forward-Looking Statements This press release contains
"forward-looking statements" within the meaning of applicable
securities legislation. Forward-looking statements may include,
among others, statements relating to the Chapter 11 proceedings and
MID's participation therein. Words such as "may", "would", "could",
"will", "likely", "expect", "anticipate", "believe", "intend",
"plan", "forecast", "project", "estimate" and similar expressions
are used to identify forward-looking statements. Forward-looking
statements should not be read as guarantees of future events or
results and will not necessarily be accurate indications of whether
or the times at or by which such future events or results will be
achieved. Undue reliance should not be placed on such statements.
Forward-looking statements are based on information available at
the time and/or management's good faith assumptions and analyses,
and are subject to known and unknown risks, uncertainties and other
unpredictable factors, many of which are beyond the Company's
control, that could cause actual events or results to differ
materially from such forward-looking statements. Important factors
that could cause such differences include, but are not limited to,
the risks and uncertainties inherent in the Chapter 11 process,
including the auction of MEC's assets, and the risks that are set
forth in the "Risk Factors" section in MID's Annual Information
Form for 2007, filed on SEDAR at http://www.sedar.com/ and attached
as Exhibit 1 to MID's Annual Report on Form 40-F for the year ended
December 31, 2007, which investors are strongly advised to review.
The "Risk Factors" section also contains information about the
material factors or assumptions underlying such forward-looking
statements. Forward-looking statements speak only as of the date
the statements were made and unless otherwise required by
applicable securities laws, MID expressly disclaims any intention
and undertakes no obligation to update or revise any
forward-looking statements contained in this press release to
reflect subsequent information, events or circumstances or
otherwise. DATASOURCE: MI Developments Inc. CONTACT: about this
press release, please contact: Shareholders and Analysts: GMP
Securities L.P., Eugene McBurney, Harris Fricker, (416) 367-8600;
Media: Sard Verbinnen & Co., Paul Caminiti, Dan Gagnier, Lauren
Rosenfield, (212) 687-8080
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