January 11, 2010 / 4:41 PM / 10 years ago

UPDATE 2-Stronach settles Magna Entertainment case

* Stronach’s MI Developments to pay $96.5 mln

* Creditors accused Stronach of fraudulent transfers (Adds details and background in paragraphs 6-14)

By Tom Hals

WILMINGTON, Del., Jan 11 (Reuters) - The controlling shareholder of horse track owner Magna Entertainment Corp will pay at least $96.5 million to settle allegations that he looted the company’s assets prior to its bankruptcy filing, an attorney for Magna’s unsecured creditors said on Monday.

The agreement clears the way for Magna to exit bankruptcy in the coming months, said the lawyer, Kenneth Eckstein, of Kramer Levin Naftalis & Frankel.

The committee of unsecured creditors filed suit with Delaware’s bankruptcy court in mid-2009 over what it said was the fraudulent transfer of more than $125 million to companies controlled by Canadian billionaire Frank Stronach before Magna’s MECAQ.PK bankruptcy, according to court documents.

Stronach, a horse enthusiast, controls MI Developments Inc MIMa.TO, which is the majority shareholder of Magna.

Eckstein said MI Developments will pay unsecured creditors $76.5 million in cash and $20 million from the sale of Magna’s Lone Star Park race track in Grand Prairie, Texas.

The unsecured creditors will receive additional payments if the sales of other Magna tracks yield proceeds above certain thresholds.

The suit alleged that MI Developments, or MID, breached its fiduciary duties by “looting and engaging in self-dealing transactions to the detriment of the debtors.”

The unsecured creditors wanted to have MID’s secured claims subordinated to unsecured claims in terms of recovery in the bankruptcy.

“There will be significant distributions to unsecured creditors,” said Eckstein. “MID will essentially be sponsoring this plan and getting significant assets back as part of the reorganization.”

Unsecured creditors could increase their recovery on their claims, which total about $250 million. They will receive all proceeds above $20 million from the sale of Thistledown, in North Randall, Ohio, and half of the proceeds above $20 million from the sale of Pimlico Race Course, which hosts the Preakness Stakes in Baltimore.

As a result of the agreement, MI Developments will obtain some Magna assets to settle its claims. It will get Golden Gate Fields in Berkeley, California; Santa Anita Park in Arcadia, California; and Gulfstream Park in Hallandale, Florida. It will also get the Amtote and XpressBet wagering platforms.

An attorney for Magna said the company hopes to file a plan of reorganization next month that would be centered around the agreement announced on Monday.

“There are many issues that need to be threshed out,” said Brian Rosen, an attorney with Weil, Gotshal & Manges, which represents Magna.

Shares of MI Developments were up about 0.5 percent in midday trade in Toronto. (Reporting by Tom Hals; editing by John Wallace)

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