UPDATE 2-Debt-laden Magna Entertainment seeks protection

* Says arranged $62.5 mln 6-month secured financing

* To sell assets, implement reorganization

* Seeks to ensure payment of wages, benefits, winnings (Adds details, quotes; in U.S. dollars unless noted)

By John McCrank

TORONTO, March 5 (Reuters) - Magna Entertainment Corp MECa.TO, said on Thursday it filed for bankruptcy protection in the United States and sought court recognition of that status in Canada as it struggles with a mountain of debt.

North America's leading owner and operator of horse racetracks, said it expects its day-to-day operations to continue.

MEC said it had arranged a $62.5 million, six-month secured debtor-in-possession financing facility from its controlling stakeholder, MI Developments Inc MIMa.TO, the real estate arm of auto parts giant Magna International Inc MGa.TO.

Aurora, Ontario-based MEC said it would use the facility to fund its operations while it reorganizes, sells assets and pays debt under U.S. Chapter 11 protection from creditors.

MEC counts U.S. racetracks Santa Anita and Pimlico among its holdings. It recently warned that it may not be able to meet obligations after MID scrapped a plan to spin it off because the weak economy would have likely prevented it from arranging new debt financing.

After the plan was scrapped, MEC said it had a $40 million note due Thursday, and that if it was unable to meet the obligation, it would cause an additional $230 million in debt to come due.

As part of the Chapter 11 filing, MEC said it sought emergency relief to ensure continued payment of employee wages and benefits, as well as track winnings, and to maintain its ability to honor existing customer programs.

The company's shares were halted at 30 Canadian cents on the Toronto Stock Exchange on Thursday. At the beginning of 2006, MEC was trading at C$166.40 a share.

It was due to be delisted from the TSX on April 1 for failing to meet listing requirements.

"TOO MUCH DEBT"

MEC's bankruptcy filing said the company had $1.05 billion in assets and $958.6 million in debt.

"Simply put, MEC has far too much debt and interest expense," Frank Stronach, the company's chairman and chief executive, said in a statement. Stronach is also chairman of MID and Magna International.

Previous plans to spin off the company have been sunk by infighting and legal wrangling among shareholders, some of whom thought the deals would have unfairly benefited Stronach.

MEC had also planned to sell some properties under a debt elimination plan, but the U.S. recession undercut that plan.

MEC said Thursday it would sell certain assets to MID for $195 million, or to another company if a higher bid emerges. The assets include Golden Gate Fields and Gulfstream Park.

MID said in a release it went ahead with its bid with the intent of preserving the value of its secured loans to MEC.

The current balance of MID's existing loans to Magna Entertainment, including accrued interest, is around $372 million, the company said.

($1=$1.29 Canadian) (Reporting by John McCrank; editing by Rob Wilson)