MEC asset sales stall as losses hit record
Troubled Magna Entertainment Corp. says it needs more money soon because it can’t sell assets fast enough to pay down a smothering debt load and stay alive.
The Aurora-based racetrack and gambling company revealed yesterday the deteriorating U.S. real estate market has slowed an aggressive asset sale, debt-reduction plan and will necessitate more outside financial assistance.
"The sale of assets under the debt elimination plan is taking longer than originally contemplated," MEC said. "As a result, the company will likely need to seek additional funds in the short term from one or more possible sources."
MEC, which auto-parts magnate Frank Stronach founded in the late 1990s and still runs, added there are no assurances it can raise those funds and on what terms.
The statement came in a note accompanying the fourth-quarter and year-end financial report, where MEC posted record losses.
The note repeated the same warning of several previous quarters that "the company’s ability to continue as a going concern is in substantial doubt."
MEC’s net loss climbed to $113.7 million last year from red ink of $87.3 million in 2006. But revenue improved to $625.7 million from $574.1 million in the same periods.
In the final quarter, the loss soared to $42.9 million from red ink of $12.4 million in the same three months of 2006. Revenue climbed to $117.2 million from $102.5 million.
"No one could be happy with our performance," said Stronach, MEC’s interim CEO.
MEC faces $209.4 million (U.S.) in maturing debt in the first half of this year, including $180 million with parent MI Developments.
MI’s chief executive officer John Simonetti said last year that "something has got to give" regarding the worsening situation and pressures from minority shareholders to stop backing MEC.
The company gained some breathing room late last year through a short-term bridge loan of $80 million, which is part of the amount it owes to MI, and $20 million from Stronach via a private placement.
Stronach told a conference call with analysts and investors yesterday he would personally invest more in the racetrack company if there were a rights offering.
Stronach has hinted some sales are imminent and suggested that one could involve its track and resort operation in Austria, which the company closed last year.
But he insisted yesterday he won’t be short-changed on values payday loans. "I just want to point out there won’t be no fire sales."
Tom Hodgson, a former MEC chief executive officer now heading the company’s debt-reduction plan, said the falling real estate values south of the border have led to fewer interested buyers than expected in some properties. Furthermore, potential buyers are finding it difficult to find financing.
MEC is also considering partnerships and joint ventures at some tracks and gambling operations in efforts to reduce debt.
Hodgson admitted the year-end target is "ambitious," but he said MEC wants to keep its commitment.
Regarding the latest quarterly loss, Ron Charles, MEC’s chief operating officer, said construction has adversely affected parking and business at Florida’s Gulfstream Park, which was already struggling. At California’s Santa Anita Park, drainage problems for a new track surface have forced cancellation of several race days, he disclosed.
Stronach said he was mindful of the company’s sagging stock price, which has fallen below $1 and is in danger of losing its trading status on the Nasdaq market. The company could address that issue by seeking a reverse stock split, he told investors.
Stronach, who has been looking for a new chief executive for more than nine months, sounded testy when frustrated investors pressed him during the conference call.
"Every quarter, the results are disappointing," complained investor Tim Rice. "Every quarter, we’re going to sell assets and reduce debt, and nothing ever happens."
Stronach cut him off later to take another call where he restricted a shareholder to just one question before quickly turning to another caller.
"Hopefully on the next conference call, we have better news," Stronach said before hanging up.
Filed under: technology by Specialist