MI Developments shareholder pushes company to enforce Magna Entertainment's debt obligation

By Lisa Kerner

Charlotte, N.C., Feb. 24 - MI Developments Inc. shareholder Farallon Capital Management, LLC went on record as "strongly encouraging" the company to enforce Magna Entertainment Corp.'s debt obligations when they come due or to foreclose on the loans if they are not paid in full as required on their accelerated maturity date of March 20.

The shareholder's comments were included in a Feb. 23 letter to MI Developments in a schedule 13D/A filed with the Securities and Exchange Commission.

According to Farallon, MI Developments has been vague on whether it intends to enforce the debt obligations.

MI Developments said it is in discussions with Magna Entertainment about alternatives for its investment in Magna Entertainment. Farallon called MI Developments' statement "ominous."

Farallon said it will not accept any alternatives to foreclosure, including MI Developments' acquisition of Magna Entertainment, extending new financing or converting outstanding Magna Entertainment debt into equity.

"If Magna Entertainment fails to repay the loans as scheduled, MI Developments should not waste a single day waiting to exercise its rights as a creditor. Any other course of action would be a dereliction by the board of its fiduciary duties," Farallon's letter said.

Farallon said that according to MI Developments, the debt to be accelerated includes $48.5 million outstanding under the first tranche of the new loan extended to Magna Entertainment and $126.2 million outstanding under a bridge loan that MI Developments originally provided in September 2007.

In a statement released Feb. 18, MI Developments said it doubts it can arrange the debt financing that was part of its reorganization plan due in part to current economic conditions.

MI Developments abandoned its planned reorganization announced on Nov. 26, accelerating loans owed to the company by Magna Entertainment, it was previously reported.

Under the proposed reorganization, Magna Entertainment entered into an agreement with controlling shareholder MI Developments and entities affiliated with Magna chairman and chief executive officer Frank Stronach for transactions including the spinoff of Magna Entertainment to MI Developments' existing shareholders, according to a prior news release.

MI Developments is an Aurora, Ont.-based real estate operating company engaged in the ownership, development, management, leasing and acquisition of industrial and commercial real estate properties located in North America and Europe.

Magna Entertainment owns and operates horse racetracks. It is also based in Aurora, Ont.

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