(Adds details, background, comments. In U.S. dollars unless noted)
By John McCrank
TORONTO, Nov 6 (Reuters) - Struggling racetrack operator Magna Entertainment Corp MECa.TO warned late on Wednesday that its debt elimination plan was in jeopardy due to the market downturn and that it may have to sell some of its core assets to stay afloat.
The company, which counts U.S. racetracks Santa Anita and Pimlico among its holdings, is burdened with a growing debtload and, as of Sept. 30, had an accumulated deficit of $626.1 million and a working capital deficiency of $195.4 million.
“The company’s ability to continue as a going concern is in substantial doubt and is dependent on the company generating cash flows that are adequate to sustain the operations of the business,” Magna Entertainment said in a statement.
Frank Stronach, MEC’s chairman and chief executive, said weak real estate and credit markets have hurt its ability to sell non-core assets, which was a key to its debt elimination plan, announced in Sept. 2007.
“As a result, we are evaluating MEC’s core operations with a view to possibly selling or joint venturing one or more of MEC’s core racetracks in order to strengthen MEC’s balance sheet and liquidity position,” Stronach said.
At the end of the third quarter, MEC had $255.4 million of debt set to mature in the next year.
Included in the total: $36.5 million with a Canadian financial institution maturing on Nov. 17; $88.6 million under its bridge loan facility with a subsidiary of its controlling shareholder, MI Developments Inc MIMa.TO, due to mature Dec. 1; and an obligation to repay $100 million under its Gulfstream Park project financings with a subsidiary of MID by Dec. 1.
MEC said that if it is unable to meet those obligations, or satisfy required covenants in debt agreements, all its other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements.
It said it could avoid that fate if it could obtain waivers, modifications or extensions, “none of which is assured.”
The company, part of a group headed by Canadian auto parts maker Magna International <MGa.TO, reported a slightly narrower quarterly loss, as income from discontinued operations offset higher interest levels due to increased debt.
It posted a net loss of $48.4 million, or $8.26 a share, in the third quarter compared with a loss of $49.8 million, or $9.25 a share, in the same quarter a year earlier.
Revenue rose slightly to $81.6 million from $81.5 million.
Net income from discontinued operations rose by $7.5 million, mainly due to higher returns from its Remington Park slot operations and the recognition of certain tax benefits related to its Austrian operations.
The company’s stock was down 28 Canadian cents, or 6.3 percent, at C$4.20 on the Toronto Stock Exchange at midday. (Reporting by John McCrank; editing by Rob Wilson)