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.
In the meantime, the bank asked U.S. District Judge Karen K. Caldwell to force Zayat to allow them to inspect the horses and his business operation. The bank said it is prepared to maintain and care for the horses until the case is resolved.
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."
Craig Robertson, attorney for Fifth Third Bank, had no comment Monday.
In a memorandum filed Monday opposing the takeover, Zayat denied that the stable is insolvent, saying he has obtained $5.2 million in unidentified outside financing.
Fifth Third alleges that "due to the dire financial condition of Zayat Stables, there will not be sufficient cash to properly train, care for and feed" the horses, decreasing their value, "and possibly threatening the lives and health of some of the animals."
Zayat, who was the leading Thoroughbred racehorse owner in North America in 2008 and breeder of 2009 Kentucky Derby second-place finisher Pioneerof the Nile, disputed that.
He has submitted statements from trainers, stallion operations and horse farms in Kentucky, Florida, Pennsylvania, California and Canada stating that the horses are being properly cared for and are available for inspection by the bank.
Zayat Stables, which has more than 200 horses, finished 2009 as third-leading Thoroughbred owner in North America with more than $6.8 million in earnings.
The size and scope of the stable makes it "nearly impossible" for Fifth Third to monitor the operation without a receiver, the bank said in its filing.
The bank proposed two candidates for federal equity receiver: Doug Dean of Dean Dorton & Ford and Charley Stivers of Crowe Horwath. Both firms handle equine accounting.
Fifth Third Bank sued Zayat in U.S. District Court in Lexington in December, alleging he defaulted on loans by failing to make payments due March 1 and July 31 and now owes more than $34 million plus interest.
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."
Zayat had planned to offer more than 100 horses at the 2009 Keeneland sales to cover the loans but withdrew them and halted those arrangements after Lexington-based bankers from Fifth Third promised to restructure Zayat's loans, he claimed. The extensions were abruptly canceled months later by Cincinnati-based bankers, too late to sell the horses and make up the payments, according to Zayat.
Barry Hunter, attorney for Zayat, could not be reached for comment.
In the Jan. 25 memo, Zayat acknowledged "serious financial challenges" but objected to the bank's proposed remedy, which he portrayed as "desperate."
"It cannot seriously be contended that a CPA — even a highly qualified CPA such as Doug Dean or Charley Stivers — has the qualifications and experience necessary to manage the liquidation of a portfolio of 203 Thoroughbred horses," according to the memo, which argues instead for "an orderly liquidation in the normal course of Zayat Stables' business — not by a CPA liquidator's fire sale."
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."
In Zayat's response Monday, he said that "Ephraim David" is not a pseudonym that (he) has used to avoid legal obligations; it is his Hebrew name from birth," and he claimed the name appears as an alternative name on credit agency reports.