Zayat Stables sued for outstanding equine loans; files Chapter 11

[Glimmerglass]

Another large owner in the game on what appears to be mostly borrowed money …

DRF 12-16-09 “Bank sues prominent owner Zayat”

excerpt

The suit filed Tuesday in U.S. District Court in Lexington alleges that Zayat Stables took out a total of $38,645,970 in seven loans with Fifth Third between Aug. 1, 2007, and Jan. 14, 2009, and agreed to give the bank a security interest “in all of Zayat Stable’s then owned and thereafter acquired interests” in bloodstock, including horses, stallion shares, purses and breeders’ awards, and stallion income.

According to Fifth Third’s lawsuit, the parties amended the loan terms in January to say that “if Zayat Stables defaulted on any of the Notes, such default would be considered a default under all of the notes thereby entitling Fifth Third to accelerate the principal balance and all accrued interest due and owing under all of the Notes.”

Fifth Third now alleges that Zayat Stables defaulted on notes from Aug. 1, 2007, and Sept. 23, 2008, when it did not make payments due on March 1, 2009, and July 31, 2009. The bank says Zayat has since paid off the Sept. 23, 2008, note and made payments totaling about $1.3 million on other loans but remains in default on the Aug. 1, 2007, note.

Zayat declined to comment on the suit when first contacted on Wednesday morning. Craig Robertson, the attorney for Fifth Third, also declined to comment, saying, “The bank does not comment on pending litigation.”

Borrowing large sums of money to buy horses never seems like a wise idea.

Zayat has been a major buyer and owner since entering the business in 2005, and Zayat Stables has grown to more than 200 horses, according to the National Thoroughbred Racing Association. His recent noteworthy horses include Zensational, who will enter stud at Hill ‘n’ Dale Farm in Lexington in 2010; 2009 Grade 1 winner Thorn Song; Pioneerof the Nile, who stands at Vinery in 2010; and 2009 Grade 2 winner Soul Warrior.

[Glimmerglass]

From the TB Times: 12-16-2009 “Bank sues Zayat over loans”

Zayat Stables was North America’s leading owner by purse earnings in 2008 and ranks third in ‘09 at $6,244,179.

Bloodstock agent Brett St. Armand said he worked on Zayat’s behalf in placing the regional stallions and has since had trouble contacting him.

“They couldn’t sell them because the market went to [redacted],” St Armand. “I’m in line just like everyone else, and I actually have money coming his way. People want to book mares and they can’t get a hold of [Zayat].”

St. Armand said Sobhy Sonbol is no longer working for Zayat. Sonbol helped launch Zayat’s racing operation in 2005 and served as racing manager and vice president of Zayat Stables. Sonbol was not available for comment.

[Glimmerglass]

A must say a rather amazing retort from the updated DRF story:

“This shocks us as much as it shocks you, and we are surprised that they would do this to one of their strongest borrowers,” Zayat said Wednesday afternoon.

Strongest borrowers - that’s rich. I’ll have to use that one someday as an expression for having a sizable debt.

[haligator]

Hi Glimmerglass,
‘Strongest Borrowers’ - priceless! Once again Hallie snorts grape juice onto the computer screen.

How in the heck did Zayat manage to keep borrowing money? Okay, let’s be COTH Stables and hustle on down to Fifth Third Bancorp and tell them a fairytale. Apparently, they are either amazingly stupid or Zayat offered a very lively narrative that made the bank actually believe in the horse business as a great investment.

Okay, now we can begin worrying about his horses…

Here is a rather annoying thought. Zayat was leading owner in 2008, and is third this year. Just great advertising about horse racing people being dishonest or perhaps not too trustworthy. The PR end result (probably) will be less horse farms, etc., being able to borrow far smaller sums of money.

The name of one of his horses says it all - Massive Drama!

Hallie
Hallie I. McEvoy
Racing Dreams, LLC

[Pronzini]

St Amand? I knew I knew that name!

http://www.thoroughbredtimes.com/national-news/2004/September/09/Washington-yearling-sale-hit-with-rash-of-returned-horses.aspx

[DickHertz]

LOL…know I know why they sent horses to the lovely confines of Penn National - to try and make money rather than worry about prestige (most big-name owners don’t bother running at Penn despite $40,000 allowance races and $34k MSW).

As a quasi related aside, one of by good buddies sells cars for a large volume car dealer and one time he talked about how it’s getting harder to get people financed for cars then he talked about how the majority of doctors and lawyers who pull up in a Beamer and want to look at new cars typically have much worse credit than the guy who helps build Harley’s at an assembly plant for $15 and hour.

[Glimmerglass]

Another quote that is a “well, of course” type of addition to this:

Keeneland vice president, Harvie Wilkinson, said Zayat “has been a good client over the years, and we have absolutely no problem with him right now.”

Considering Keeneland hasn’t been a party to any financing of the horses (nor would they) and all purchases have to be settled up why would they complain about a free spending client using other people’s money?

No auction house would complain about a prolific client when they’re paid in full.

Dick - without a doubt there are a folks who have appeared to be wealthy but frankly have been living on borrowed time and money. Nothing new as per say but seemingly the numbers of people who existed in that faux-world are more substantial then ever. Seemingly a heck of a lot of them seem to be attracted to horses - race horse, pleasure horses, horse farms, the equestrian old-money lifestyle etc.

As for Zayat, he very likely could still be very wealthy - and he wouldn’t be the first to “have fun” with someone else’s money simply because it was so easily offered to him - as he did sell his ABC firm to Heineken in 2002 for about $270M US. Although he likely pocketed just a small portion of that amount.

[hitchinmygetalong]

He’s just the tip of the iceberg.

I would not want to be in any of the “equine lending” departments of Fifth Third or Chase right now. Those people must be sweating bullets.

[mvp]

Yeah, but

During the first stage of the economic meltdown in summer of 2008, a banking dude interviewed by NPR explained how “big borrowers” were seen as valuable to banks.

Sales forces in them began conceptualizing loans as “products” and loans made as “sales” for which these peeps were paid commissions. Quoted terms were theirs, not mine.

It took me a minute to wrap my head around money lent as a good sold. But it makes perfect sense in the banking world where your “raw material” is money you can lend and your profit is interest owed.

It also opened my naive eyes to the way that bankers look at big borrowers not as supplicants, but as customers to be courted.

[Glimmerglass]

[QUOTE=mvp;4563191]
During the first stage of the economic meltdown in summer of 2008, a banking dude interviewed by NPR explained how “big borrowers” were seen as valuable to banks.[/QUOTE]

However commerical banking at its core has always been the same. Deployed capital into client’s projects which have risk which is at or below the bank’s tolerance threshold and will (on the most conservative levels) yield a return which satisfies their criteria.

The fact that some banks got exceedingly loose in their lending doesn’t really change my views of those who indulged. You only have to look back into the 1980’s to see that several banks were burned when they loaned far too much money to J.T. Lundy with Calumet.

Again loaning large sums of money to purchase speculative race horses to a buyer just seems on the face of it insane. Yes there are pinhookers and even a few buyers who pay premiums for horses who ultimately reap a fortune through syndication sale or even retaining breeding rights. But those winners are few and always have been.

Since 2000 [so already a trend before this one example] purses for races have dipped, the number of race courses have declined, and the longevity of race horses with the number of starts in a career have taken a swan dive. The real money of stud fees have dropped off and the cost of buying ‘stock’ from scratch at auction was already significant. So making money off a stable formed from bank borrowed funds just seems nearly impossible.

Leading owners as of 12/17/09:

1- WinStar: Kenny Troutt, telecom money, billionaire; significant homebred operations
2 - Michael Gill: mostly claim purchases
3 - Juddmont Farms: Prince Khalid who has deep pockets
4 - Zayat
5 - Darley Stable: Sheikh Mo who is still has very deep pockets
6 - Augustin Stables: mostly homebreds, Campbell’s soup money

It would look like of those players above 5 of 6 could easily deal with lean years because of either substantial non-racing fortunes or they have an inventory of horses either purchases for dirt cheap or bred in-house.

[mvp]

Glimmerglass, I’m with you.

And I can imagine the bankers trying to look intelligent while watching a powerpoint presentation by some guy working for the would-be borrowers trying to teach them enough about the economics of horse racing such that… wait for it…that’s right! In this case horses are a sure-fire way to make money.

[SleepyFox]

What’s downright frightening is that you can be the 4th leading owner in the nation and still be losing money. I see a lot of reasons that racing’s future is in trouble on this BB, but I think that’s the biggest problem we face - it’s too hard to make money (or even break even) in this business. How do you attract new owners when that’s the case?

[Glimmerglass]

Fair being fair in citing that Fifth Third Bank is also taking action for outstanding equine loans with others - DRF Dec 31, 2009: Bank sues Cash Asmussen over $3M loan

The Lexington Herald-Leader reported Thursday that the suit, filed Dec. 17 in the Fayette Circuit Court, alleges that [Cash] Asmussen and his wife, Cheryl, [“Mark Point Stables”] failed to make an October payment on a loan of more than $2.99 million and that they owed a total of $3.08 million plus interest by Dec. 8.

Fifth Third has a security interest in Mark Point Stable’s equine collateral. The lawsuit also named Laredo National Bank and Bemak N.V. Ltd., the Coolmore Stud subsidiary that owns Ashford Stud, as defendants “because they may also be asserting an interest in the collateral,” according to the Herald-Leader.

Asmussen, a five-time champion jockey in France and brother of prominent trainer Steve Asmussen, could not be reached Thursday for comment at his home in Laredo, Texas, or at the Asmussen family’s training center, also in Laredo, where an employee who answered the phone said Asmussen was out of town.

Despite the recent actions the bank will remain the title sponsor (as they have since 2005) for the noted turf race with the Keeneland spring meet: the Fifth Third Elkhorn Stakes grade 2-t

[system]

Congratulation Fifth Third Bank!!! Toast to YOU!!

Whatta Joke!!! Fifth Third Bank took TARP money!!! Congratulation Zayat stables on a well executed plan…and welcome aboard Fifth Third Bank…now your gonna get a first hand look at what Thoroughbred ownership is all about…let’s see who get’s the last laugh this time…someone call Uncle “Bernie” and let him know they finally got there “Cum Upn’s” lol…lol…lol. and then let’s just settle in and see if Obama will bail us all out…peace!

[cloudyandcallie]

@Glimmerglass;4560564

A must say a rather amazing retort from the updated DRF story:

Strongest borrowers - that’s rich. I’ll have to use that one someday as an expression for having a sizable debt.

Cool phrase! Thanks for telling us about it and coining a new phrase!:lol::lol:

[Glimmerglass]

I suppose the bank will be hoping this example of their “strongest assets” bought by one of their “strongest borrowers” will do very well

Brisnet 1-4-10 “Eskendereya entered in Gulfstream allowance”

Zayat Stables’ [read could be Fifth Third Stables - :D)] Eskendereya scored by 7 1/4 lengths in the off-the-turf Pilgrim S. in his only start on dirt, will return to the traditional surface in Thursday’s 8TH race at Gulfstream Park. Contested over a one-turn mile, the entry-level allowance has lured an overflow field of 15 three-year-olds.

[Trained by Todd Pletcher] the well-bred colt, a half-brother to English Group 1 victor Balmont (Stravinsky) from the family of 1974 Kentucky Derby (G1) hero Cannonade (Bold Bidder), will break from post 6 with new rider John Velazquez.

[Glimmerglass]

Look’s like the bank has come 'a knock’in at Ahmed’s house looking for the horses and concerned that their collateral might not be kept up to par

Herald-Leader 1-26-10 “Bank wants to take over Zayat’s horses”

Fifth Third Bank has asked a federal judge to take over the racing stable of top Thoroughbred owner Ahmed Zayat, saying he might not have enough cash to feed and care for the horses.

A hearing has been set for Feb. 8.

The bank, which alleges Zayat owes more than $34 million, said it is necessary to appoint a receiver, an independent caretaker to protect the horses, which were used as collateral for the loans.

And yes - can you be a leading money earning stable and lose money? Indeed:

The bank, in a Jan. 4 request, said Zayat has disclosed that from 2006 through 2009, Zayat Stables lost almost $65.5 million and is expecting a cash-flow deficit of nearly $3 million this year.

The bank said Zayat claims to have lost $42 million of his own money “and is unwilling to fund the projected cash flow shortfall.”

By the way the best client of Fifth-Third Bank actually countersued:

On Jan. 12, Zayat countersued, claiming that much of the financial mess is the bank’s fault.

Zayat is seeking unspecified damages for “misleading, deceptive and predatory lending practices” that have “positioned Zayat Stables for financial ruin.”

An interesting element, although likely not that material considering he sold his ABC beverage, outside of the US, in 2002 to Heinekin which has allowed him to be such a big player.

Fifth Third also claimed that Zayat failed to disclose on his loan applications a 1993 personal bankruptcy in New Jersey under the name “Ephraim David Zayat.”

[Glimmerglass]

In regards to the suggestion of improper care Zayat produced letter’s from his fleet of trainers:

Zayat owns 203 Thoroughbreds, between horses in training, stallions, broodmares, and young horses. He submitted statements from trainers including Steve Asmussen, Bob Baffert, Todd Pletcher, and Nick Zito and from farm and boarding operations who all said that his horses are being maintained properly and that they are available for inspection from the bank.

[Glimmerglass]

Not exactly shocking but we’ll see where this one goes

BH 2-3-2010 “Zayat Stables Files Chapter 11 Bankruptcy”

Zayat said the legal move is designed to protect his horse operation from efforts by Fifth Third Bank to have a receiver appointed to oversee Zayat Stables, which owns more than 200 horses. Zayat said he will make sure all bills related to the stable, including payments to trainers, suppliers, and farms where his horses are boarded, will be paid during the time he reorganizes under Chapter 11.

“This action is aimed only at one entity,” Zayat said in a telephone interview.

The owner said his business plan remains unchanged – to operate a stable at the highest level, with top trainers – and that he will continue to pursue his goal of winning the Kentucky Derby Presented by Yum! Brands (gr. I).

Actually if the bank owns the horses, by virtue of them being the collateral on a defaulted loan, wouldn’t the bank be listed as an owner for any racing efforts? Not unlike Midnight Cry Stables.

[Glimmerglass]

@Glimmerglass;4561391

Considering Keeneland hasn’t been a party to any financing of the horses (nor would they) and all purchases have to be settled up why would they complain about a free spending client using other people’s money?

No auction house would complain about a prolific client when they’re paid in full.

Actually I was mistaken - Zayat does owe Keeneland but that money is secured meaning they’ll get paid in full long before Bob Baffert, et al

Zayat’s filing names Keeneland as an approximately $2.4 million secured creditor. Unsecured creditors include Darley Stud, Adena Springs, and trainers Bob Baffert, Nick Zito, and Steve Asmussen.