Magna Entertainment Corp. Announces Debt Elimination Plan, Funding Arrangement through Private Placement and New Bridge Loan Facility, and the Appointment of New Independent Director



    AURORA, ON, Sept. 13 /CNW/ - Magna Entertainment Corp. ("MEC" or "the
Company") (NASDAQ:   MECA; TSX: MEC.A) today announced that as a result of the
completion of its strategic review of assets and operations, a number of
important initiatives have been adopted, including:

    
    -   adopting a plan designed to eliminate the Company's net debt by
        December 31, 2008 by generating aggregate proceeds of approximately
        $600-$700 million from the sale of assets, entering into strategic
        transactions involving MEC's racing, gaming and technology
        operations, and a possible future equity issuance, likely in 2008, as
        well as improving future earnings;

    -   arranging $100 million of funding to address immediate liquidity
        concerns and provide sufficient time to implement the plan, comprised
        of: (i) a $20 million private placement of MEC Class A Subordinate
        Voting Stock ("Class A Stock") to Fair Enterprise Limited ("Fair
        Enterprise"), a company that forms part of an estate planning vehicle
        for the family of Mr. Frank Stronach, the Chairman and Interim Chief
        Executive Officer of MEC; and (ii) an $80 million short-term bridge
        loan from a subsidiary (the "MID Lender") of MI Developments Inc.
        ("MID"), MEC's controlling shareholder; and

    -   appointing Tony Campbell of Knott Partners Management, LLC as a new
        independent director.
    

    "From the outset, the development of this plan to eliminate MEC's net
debt and improve its earnings has been actively supported by the Company's
Founder, Chairman and Interim CEO, Frank Stronach," stated Jerry Campbell,
MEC's Lead Director.
    Mr. Frank Stronach said, "This plan, unanimously approved by MEC's Board
of Directors, has now firmly and publicly set us on a course to eliminate debt
and improve operations. Almost eight weeks ago, I sought out Tom Hodgson (a
former CEO of MEC) to help MEC accelerate the pace of asset sales with a view
to quickly and dramatically reducing MEC's debt. The Board endorsed my
decision and retained Tom's firm, Greenbrook Capital Partners Inc., for that
purpose. Tom's first assignment was to conduct an independent review of MEC's
assets and operations with a view to determining the best way to achieve our
goal of eliminating debt. That phase of his work is now complete. We have
identified the assets to be sold outright as well as the strategic
transactions involving other racing, gaming and technology operations that
need to be completed to achieve our goal of being debt-free by the end of
2008. The next step is execution and I am pleased that we will continue to
have Tom's support through this phase. I am also pleased that Tony Campbell
has agreed to join our Board of Directors and am confident that he will
provide important input as we move forward. As evidenced by the initiatives
announced today, I continue to believe in MEC's vision and strategy and my
belief in MEC's place within the thoroughbred racing and entertainment
industries remains strong. I am determined that our debt elimination plan will
be successfully and fully implemented on a timely basis."

    Debt Elimination
    ----------------
    The plan is designed to eliminate MEC's net debt by December 31, 2008 by
generating aggregate proceeds of approximately $600-$700 million from: (i) the
sale of certain real estate, racetracks and other assets; (ii) the sale of, or
entering into strategic transactions involving, MEC's other racing, gaming and
technology operations; and (iii) a possible future equity issuance, likely in
2008.
    The initiatives outlined in MEC's second quarter release remain key
components of the plan. MEC has relinquished its racing license for the
Romulus, Michigan location, and abandoned its application in Dixon,
California. MEC intends to sell real estate properties including those
situated in the following locations: Dixon, California; Ocala, Florida;
Aventura and Hallandale, Florida, both adjacent to Gulfstream Park; Porter,
New York; Maryland, adjacent to the Laurel Park racetrack; and Ebreichsdorf,
Austria, adjacent to the Magna Racino. MEC also intends to explore selling its
membership interests in the mixed-use developments at Gulfstream Park
racetrack in Florida and Santa Anita Park racetrack in California that it is
pursuing under joint venture arrangements with Forest City Enterprises and
Caruso Affiliated, respectively.
    The racetracks that MEC intends to sell include: Great Lakes Downs in
Michigan; Thistledown in Ohio; and its interest in Portland Meadows in Oregon.
In addition, as previously announced, MEC will cease horse racing for its own
account at the Magna Racino in Austria after the close of the 2007 meet and is
exploring a contractual arrangement for a third party to utilize the racing
facilities.
    MEC also intends to explore strategic transactions involving other
racing, gaming and technology operations, including: partnerships or joint
ventures in respect of the existing gaming facility at Gulfstream Park and
potential alternative gaming operations at other MEC racetracks; the possible
sale of Remington Park in Oklahoma City; partnerships or joint ventures
relating to other racetracks, such as Santa Anita Park; and transactions
involving MEC's technology operations, which may include one or more of the
assets that comprise MEC's PariMax business.
    MEC intends to engage an investment banking firm to assist the company in
identifying potential purchasers for certain of these assets as well as
evaluating partnership, joint venture and/or strategic investment
opportunities contemplated by the plan. In addition, MEC has signed a
consulting agreement with MID pursuant to which MID will provide senior
management assistance to the MEC management team and Board to help implement
the plan.
    Mr. Hodgson remarked, "MEC is at a crossroads. The elimination of MEC's
net debt by December 31, 2008 requires the Company to raise approximately
$600-$700 million from a combination of asset sales, partnerships and joint
ventures, and a possible future equity financing. It is a tall order, but I
believe that MEC's strong asset base makes this feasible and it is a target
that all members of the Company's senior management and Board, including the
Chairman, are firmly committed to."

    $100 Million Funding Arrangement
    --------------------------------
    In order to allow the Company to fund operations, mandatory principal and
interest payments, necessary capital expenditures and implement its plan in an
orderly manner, MEC has arranged $100 million of funding, comprised of a
$20 million private placement of Class A Stock to Fair Enterprise and a Bridge
Loan of up to $80 million from the MID Lender.

    Private Placement to Fair Enterprise
    ------------------------------------
    MEC has entered into a definitive agreement pursuant to which Fair
Enterprise will invest $20 million in MEC by way of a private placement of
Class A Stock. The subscription price per share will be the greater of: (i)
90% of the volume weighted average price per share of Class A Stock on NASDAQ
for the five trading days commencing on the date of this press release; and
(ii) $1.91, being 100% of the volume weighted average price per share of Class
A Stock on NASDAQ for the five trading days immediately preceding this
announcement. MEC expects the private placement, which is subject to
regulatory approval, to close before the end of October 2007, with the
proceeds to be used to fund MEC's operations.

    Bridge Loan
    -----------
    The bridge loan matures on May 31, 2008 and is non-revolving. An
arrangement fee of $2.4 million is payable to the MID Lender on closing, and
there is a monthly commitment fee equal to 1.0% per annum (payable in arrears)
on the undrawn portion of the $80 million maximum loan commitment. The loan
will bear interest at LIBOR plus 10.0%, with an increase of 1.0% coming into
effect on December 31, 2007 if MEC has not completed asset sales (or executed
asset sale agreements acceptable to the MID Lender) or completed equity
financings (other than the private placement to Fair Enterprise) with
aggregate net proceeds of $50 million. If, by February 29, 2008, MEC has not
entered into agreements acceptable to the MID Lender for asset sales that
would yield aggregate net proceeds sufficient to repay the entire outstanding
loan amount, the interest rate increases by another 1.0%.
    The bridge loan is required to be repaid by way of the payment of the net
proceeds of any asset sale, any equity offering (other than the private
placement to Fair Enterprise) or any debt offering, subject to specified
amounts required to be paid to reduce other prior-ranking indebtedness.
    It is a condition of funding under the bridge loan that MEC's senior
secured revolving credit facility with a Canadian chartered bank in the amount
of $40 million be amended so that the facility expires no earlier than
January 31, 2008. This extension has been negotiated and is anticipated to be
executed shortly.
    The bridge loan will be secured by essentially all of the assets of MEC
and by guarantees provided by certain subsidiaries of MEC. The guarantees will
be secured by charges over the lands owned by Golden Gate Fields, Santa Anita
Park and Thistledown, and charges over lands in Dixon, California and Ocala,
Florida, as well as by pledges of the shares of certain MEC subsidiaries. The
bridge loan will also be cross-defaulted to all other obligations of MEC and
its subsidiaries to the MID Lender and to other significant indebtedness of
MEC and certain of its subsidiaries.
    Certain amendments are also being made to the outstanding Gulfstream Park
and Remington Park project financings, made available by the MID Lender to
MEC's subsidiaries that own and operate Gulfstream Park and Remington Park to
finance reconstruction and casino facility construction work. Those amendments
require, among other things, that $100 million of indebtedness under
Gulfstream Park project financing be repaid by May 31, 2008, in return for the
MID Lender agreeing to waive any applicable make-whole payments for repayments
made under either of the project financings prior to May 31, 2008.
    Mr. Hodgson said, "Although this new bridge loan facility involves
incurring more debt in the short term, the plan contemplates the need for the
bridge facility to address MEC's projected cash needs up until May 2008,
pending completion of intended asset sales and other strategic transactions."

    Special Committee Process
    -------------------------
    Consideration of the private placement, the bridge loan, the amendments
to the project financing facilities and the consulting agreement with MID was
supervised by the Special Committee of MEC's board of directors consisting of
Jerry D. Campbell (Chairman) and William J. Menear. The approval of MEC's
board followed a favorable recommendation of the Special Committee. The
Special Committee retained independent legal and financial advisors to assist
it in its deliberations in respect of these transactions.
    MEC will file a material change report as soon as practicable after
issuing this press release. The material change report will be filed less than
21 days prior to the closings of the bridge loan and the amendment of the
Gulfstream and Remington project facilities and possibly less than 21 days
prior to the closing of the private placement. The timing of the material
change report is, in MEC's view, both necessary and reasonable because the
terms of these transactions were settled and approved by MEC's board of
directors on September 12, 2007 and MEC requires immediate funding to address
its short-term liquidity needs.

    Appointment of New Independent Director
    ---------------------------------------
    MEC also announced that Anthony (Tony) Campbell has been appointed to the
Board, effective today. Mr. Campbell is a partner of Knott Partners
Management, LLC, which has been a long-term investor in MEC and is one of
MEC's largest institutional shareholders. Knott Partners currently holds
approximately 3.4 million shares of Class A Stock.

    MEC Conference Call
    -------------------
    MEC will hold an investor conference call on Thursday, September 13, 2007
at 4:00 p.m. EST. The number to use for this call is 1-800-945-8198. Please
call 10 minutes prior to the start of the conference call. The dial-in number
for overseas callers is 212-231-2904. MEC will also be webcasting the
conference call at www.magnaentertainment.com. If you have any
teleconferencing questions, please call Karen Richardson at 905-726-7465.
    For anyone unable to listen to the scheduled call, the rebroadcast
numbers will be 1-800-558-5253 for North American callers and 416-626-4100 for
overseas callers (reservation number is 21349663). The rebroadcast will be
available until Thursday, September 20, 2007.

    About MEC
    ---------
    MEC, North America's largest owner and operator of horse racetracks,
based on revenue, acquires, develops, owns and operates horse racetracks and
related pari-mutuel wagering operations, including off-track betting
facilities. MEC also develops, owns and operates casinos in conjunction with
its racetracks where permitted by law. MEC owns and operates AmTote
International, Inc., a provider of totalisator services to the pari-mutuel
industry, XpressBet(R), a national Internet and telephone account wagering
system, as well as MagnaBet(TM) internationally. Pursuant to joint ventures,
MEC has a fifty percent interest in HorseRacing TV, a 24-hour horse racing
television network and TrackNet Media Group, LLC, a content management company
formed for distribution of the full breadth of MEC's horse racing content.

    Forward-Looking Statements
    --------------------------
    This press release contains "forward-looking statements" within the
meaning of applicable securities legislation, including Section 27A of the
United States Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act") and forward-looking information as defined in the
Securities Act (Ontario) (collectively referred to as forward-looking
statements). These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
the Securities Act (Ontario) and include, among others, statements regarding:
the potential impact of the plan on our debt reduction efforts, as to which
there can be no assurance of success; expectations as to our potential ability
to improve operations efficiency; expectations as to our ability to close the
private placement transaction with Fair Enterprise; expectations as to our
ability to complete asset sales at appropriate prices and in a timely manner;
the impact of the new bridge loan facility; expectations as to our ability to
administer the new bridge loan facility; and other matters that are not
historical facts.
    Forward-looking statements should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of
whether or the times at or by which such performance 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 made in light of our
perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in the
circumstances 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. Factors that could cause actual results to differ
materially from our forward-looking statements include, but may not be limited
to, material adverse changes: in general economic conditions, the popularity
of racing and other gaming activities as recreational activities, the
regulatory environment affecting the horse racing and gaming industries, and
our ability to develop, execute or finance our strategies and plans within
expected timelines or budgets. In drawing conclusions set out in our
forward-looking statements above, we have assumed, among other things, that
there will not be any material adverse changes: in general economic
conditions, the popularity of horse racing and other gaming activities, the
regulatory environment, and our ability to develop, execute or finance our
strategies and plans as anticipated.
    Forward-looking statements speak only as of the date the statements were
made. We assume no obligation to update forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking statements. If we update one or more forward-looking
statements, no inference should be drawn that we will make additional updates
with respect thereto or with respect to other forward-looking statements.





For further information:

For further information: Blake Tohana, Executive Vice-President and
Chief Financial Officer, Magna Entertainment Corp., 337 Magna Drive, Aurora,
ON, L4G 7K1, Tel: (905) 726-7493

Organization Profile

MAGNA ENTERTAINMENT CORP.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890