Magna Entertainment Corp., which owns Laurel Park and Pimlico Race Course, probably will not be able to make as much as $180 million in loan payments due at the end of the month even with the rush of revenue from the upcoming Preakness Stakes, its marquee and one of its biggest moneymaking events.
The debt is owed to parent MI Developments Inc., which reiterated yesterday that it does not expect Magna to be able to repay the loans by the deadline. In addition, Magna's $40 million line of credit with a Canadian bank expires on May 23. The bank has already extended its deadline twice.
The debt payments underscored Magna's struggles to stay in business amid continuing losses and heavy debt. It is in danger of being delisted from the Nasdaq stock market; its shares closed at 40 cents yesterday, down a penny.
Magna lost $46.5 million in the first quarter, usually its most profitable period, because of weather problems, fewer live race days and decreased attendance and handle at Florida's Gulfstream Park, California's Santa Anita Park and Laurel Park, the company said Tuesday. Magna has lost money since 2002, including $114 million last year, and has survived on infusions from MID and Frank Stronach, founder and controlling shareholder of Magna and MID.
Pimlico, home of the Preakness, makes most of its yearly profit from the event, the second leg of horse racing's Triple Crown. This year's race takes place May 17.
The financial interconnections have drawn criticism from shareholders of both companies. MID, which develops real estate for Magna International, another Stronach company, is considering a reorganization proposal that would separate it from the racetrack company.
Under the proposal, which Stronach supports, MID would sell its 59 percent stake in Magna Entertainment for $25 million to an unidentified buyer; analysts say Stronach is the buyer. MID's board has not made a recommendation yet and no shareholder meeting has been scheduled to vote on the proposal.
Neither MID nor Magna could be reached for comment yesterday.
Magna Entertainment had hoped to sell a number of its racetracks and other property to help eliminate its debt, but slumping real estate and credit markets have not allowed that plan to progress quickly enough to deal with its near-term pressures.
Magna disclosed on Tuesday that it's holding off on selling a parcel of land near Laurel Park as the November referendum to legalize slot-machine gambling in Maryland nears. The company said the outcome could impact its development plans for the overall property.
Tim Rice, managing partner at Louisiana investment firm Rice Voelker LLC, speculated that potential buyers are trying to low-ball Stronach because Magna is so strapped for cash.
"Every potential buyer knows that they're dealing with a seller with his back against the wall," Rice said yesterday. "You're not going to put the same kind of value on something as you might in a more solidified state of the seller."
Even under such dire financial troubles, Stronach remains steadfast that he will turn Magna around. He noted the turnaround of Magna International 18 years ago as the global auto-parts company came to the brink of bankruptcy.
"I believe the primary reason MEC's stock price is so low is that some financial institutions believe MEC won't make it, but let me tell you, I was there with Magna International," Stronach told shareholders at Magna Entertainment's annual meeting Tuesday in Toronto.
"Today, Magna is one of the premiere companies in the global automotive industry with $2 billion in cash and no debt," Stronach said.
He said that Magna should start showing positive results in two years. Magna had set an end-of-the-year deadline to eliminate more than $450 million in long-term debt.
"I'm committed to MEC and I want to show you shareholders that I will do everything I can to make MEC a viable company," Stronach said.