Fifth Third Bank has notified the federal judge overseeing Thoroughbred owner Ahmed Zayat's bankruptcy reorganization that the bank is backing off on plans for another attempt to take over his stable, which includes hot Kentucky Derby contender Eskendereya.
At a hearing in U.S. Bankruptcy Court in New Jersey on Feb. 5, the bank's attorneys said they planned to seek a trustee to oversee Zayat's 200-plus racehorse stable, one of the top stables in the country.
But in a letter obtained by the Herald-Leader, Fifth Third told Judge Donald H. Steckroth on Feb. 17 that "we have determined that we will not be filing a motion to appoint a Chapter 11 trustee at this time, though we reserve our right to do so in the future."
"They have informed us they are changing strategy," Zayat said Monday.
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Fifth Third's attorney, Jeffrey D. Prol of Lowenstein Sandler in New Jersey, confirmed the switch but said he could not comment on why the bank has changed its mind.
The bank said in the letter that it might still oppose Zayat's use of cash collateral to keep the stable running. The bank has until 5 p.m. March 1 to file an objection. The next hearing is scheduled for March 8.
The court already has given Zayat approval to use as much as $1,040,892 to continue operating.
Some of that money is collateral for $34 million in loans that the bank made to Zayat. The rest of the Fifth Third loans are backed up by Zayat's horses, which the bank had alleged were in jeopardy.
Zayat denied that the horses are in danger and submitted letters from trainers and horse farms saying that the horses are in good shape and properly cared for.
The bank sued Zayat in U.S. District Court in Lexington, alleging that he defaulted on payments and now the entire loan is due. Zayat has countersued the bank, which he says reneged on an agreement to restructure the loans, costing him thousands in potential sales at Keeneland's 2009 auctions. That suit is on hold because of the bankruptcy.
Keeneland, which lent Zayat $3,131,500 to buy 24 yearlings in September, has agreed to support Zayat's efforts to keep the stable intact.
Zayat is the third leading Thoroughbred racehorse owner in North America and has branched out into breeding operations, with a dozen stallions in various states this year.
Last year, his homebred Pioneerof the Nile finished second in the Kentucky Derby. In each of the past three years, his stable has earned more than $6 million; with Eskendereya's win on Saturday in the Fountain of Youth Stakes, Zayat's stable has earned $565,790 so far this year.