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TORONTO (Reuters) - Magna Entertainment Corp MECa.TO swung to a first-quarter loss on Tuesday, hurt by a poor performance at its Gulfstream operation, cumbersome government regulations and a hefty debt load.
But founder and chairman, Frank Stronach, promised a return to profitability within two years as the company, which counts several prestigious U.S. horse racing tracks in its stable of holdings, chips away at its debt load.
"If we get debt away, we will see a steady profit. One way or another, we have to get rid of the debt this year," Stronach told reporters after the company's annual meeting.
The company has about $60 million in interest expenses, which is eating into its profits.
"Any time you have high debt, it is like a stone around your neck. It is difficult to swim," Stronach said. "You spend more time pleasing the creditors than running the business. The most important thing is to get that debt off."
Magna Entertainment, part of a group headed by auto-parts giant Magna International MGa.TO, lost $46.5 million, or 40 cents a share in the quarter, after earning a profit of $2.5 million, or 2 cents a share, a year earlier.
Quarterly revenue fell 9.1 percent to $231 million, down from $254.2 million.
Along with Gulfstream, Magna Entertainment operations include Santa Anita in California and Pimlico in Maryland. Its holdings include betting and real estate operations.
Stronach, who is also chairman of Magna International, recently put forward a plan to buy the racetrack operator for $25 million from Magna International's real estate arm, MI Developments Inc.
The plan would see Magna Entertainment's shares bought for $15.50 cash and stock of a restructured MI Developments.
While shareholders of MID have been urging the company to divest the Magna Entertainment stake for years, at least one major shareholder has said it would vote against the deal.
Greenlight Capital, which holds more than 10 percent of MID shares, called the proposal coercive, and said it would result in an "outrageous payoff" to Stronach.
Stronach said he would use his multiple voting shares to make sure the proposal goes ahead.
The restructuring would see MID transfer around $250 million in Magna Entertainment loans, $150 million in cash, and about 60 hectares of land in Aurora to a limited partnership.
Stronach would control the partnership through a 51 percent interest and, as general partner, would have exclusive control and authority over all its activities.
Holders of the new MID shares, who could vote on the plan in about two weeks, would own the rest of the partnership.
If the deal goes through, Stronach would invest an additional $25 million as part of the proposed reorganization.
The deal hinges on a five-year $1 billion loan from Magna International to MID, which the former has not yet agreed to.
Additional reporting by John McCrank; Editing by Bernadette Baum