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Former Zayat Financial Advisor Among Creditors Trying to `Force’ Stable’s Bankruptcy

Ahmed Zayat’s former financial advisor is among the entities now initiating an “involuntary bankruptcy” petition against Zayat’s family-owned racing stable. This Sept. 14 court action comes six days after the allegedly insolvent Triple Crown-winning breeder and owner voluntarily filed for his own personal Chapter 7 bankruptcy protection.

Although once prevalent, involuntary bankruptcy proceedings are now relatively uncommon in United States courts. They are designed to protect creditors, not debtors, and are often filed against companies (as opposed to individuals) as an attempt to get paid when it is believed that a firm is rapidly burning through assets and/or financial malfeasance is alleged.

Zayat Stables, LLC, is currently a defendant in a $23 million lawsuit filed in January by a New York lender alleging fraud and loan defaults. A Kentucky receiver is in the process of liquidating those equine assets.

Although it is unclear exactly what effect this attempt at “forced” bankruptcy might have on that case, one possible scenario is that the petitioners believe that the only way to preserve the remainder of the dwindling assets for distribution to them is to take legal action via an involuntary bankruptcy. They’d be banking on the bankruptcy order stopping the current liquidation from moving forward, which might keep others from getting paid first.

The Chapter 7 documents filed in U.S. Bankruptcy Court, District of New Jersey (Newark), on Monday allege that Zayat Stables owes $275,000 in loans “above the value of any lien” to Steven Keefer.

A 2003 New York Times story on Zayat’s beverage business referred to Keefer as “a former New York investment banker and now chief of staff to Mr. Zayat” who was also head of the development group for the beverage firm.

Zayat apparently even named a Thoroughbred racehorse “Keefer” in honor of his business associate. The colt broke its maiden in 2008 at Monmouth Park in New Jersey, the home state for both men.

Keefer is now the chief executive officer at U.S. Elite, LLC, a New Jersey company that specializes in “tactical” apparel for fitness and military enthusiasts. According to Keefer’s bio page on the company website, the firm’s motto is “We exist to Enhance the Warrior Lifestyle.”

U.S. Elite itself is also listed as a petitioning creditor in the court documents, alleging $188,500 in loans owed by Zayat Stables.

A third party, Joseph Bodner, who lives in the same town (Teaneck) as Zayat, is listed in the petition as being owed $150,000 by the stable.

Under involuntary bankruptcy law, if a debtor has more than 12 creditors, three creditors must join in the involuntary petition for a “force” to move forward.

The claims total $613,500. All three amounts match what Zayat stated he owed those entities in his personal Chapter 7 filing last week.

The petitioners indicated via checking a box that “The debtor is generally not paying its debts as they become due, unless they are the subject of a bona fide dispute as to liability or amount.”

In his separate, voluntary petition for bankruptcy, Zayat is claiming $19,371,466 in total liabilities versus total estimated assets of $1,892,815.

Thoroughbred trainers, horse farms, bloodstock businesses, veterinarians, and equine transportation companies are among the 132 entities listed as creditors in Zayat’s own Chapter 7 filing. They are due $14,755,1717 in “non-priority unsecured claims,” which means they are at the bottom of the hierarchy to get paid—if they get paid at all. Zayat Stables is listed as a co-debtor to 112 of those 132 non-priority unsecured claims.

The next step in the involuntary petition is for Zayat Stables to file a response. If the debtor contests an involuntary petition, the petitioning creditor must prove that the debtor is generally not paying its debts.

If the petitioners are successful, the bankruptcy court will enter an “order for relief” granting the involuntary petition.

But if the court dismisses the petition, the creditors might be on the hook for paying Zayat Stables’ attorney fees and court costs. In addition, if the court rules that the petition was made in bad faith, it can award compensatory and even punitive damages.

Involuntary bankruptcies can be complicated and fraught with peril for both sides. Nicholas Gebelt, an attorney who writes on the subject as a California-certified bankruptcy specialist, described the process like this on his law blog:

“On a practical level, the most compelling reason for filing an involuntary bankruptcy against a debtor is the fear that the debtor is rapidly depleting the resources available to pay its creditors. [But] filing an involuntary bankruptcy against someone is very dangerous. If you are a creditor who files an involuntary bankruptcy against a debtor, then if you can’t establish one of the two grounds for relief…you may find yourself paying the very entity from whom you’re trying to collect. Therefore, absent compelling exigent circumstances it is probably safer to use some other approach to debt collection.”

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Still Embattled In Civil Suit, Ahmed Zayat Files For Chapter 7 Bankruptcy, Listing String Of Racing Creditors

Ahmed Zayat, best known in horse racing as the owner of 2015 Triple Crown winner American Pharoah through his Zayat Stables, filed for Chapter 7 bankruptcy protection on Sept. 8. Paperwork filed in United States Bankruptcy Court for the District of New Jersey lists a long string of trainers, veterinarians, transport companies, and others as creditors for expenses totaling tens of millions of dollars.

Unlike Chapter 13 or 11 bankruptcy, Chapter 7 does not involve the filing of a repayment plan. Rather, a bankruptcy trustee is appointed to gather and sell assets and pay creditors when possible. Some of the debtor's property may be exempt, but anything nonexempt will be liquidated.

A lengthy list of creditors attached to the filing revealed a number of horse trainers owed amounts in the six figures, among them Bob Baffert, who is owed $227,884.17, Brad Cox ($194,836.19), Mike Maker ($120,921.88), Richard Baltas ($316,070.12), Steve Asmussen ($102,541.10) and Todd Pletcher ($125,598.69). Rudy Rodriguez, who was awarded a judgment by a New York court for $394,437.19, is also listed. Jorge Navarro's JN Racing is owed $63,822.01.

Veterinary hospitals Hagyard Equine Medical ($38,999.53), Rood and Riddle ($54,346.77), and Kentucky Equine Medical Associates ($19,937.32) are also on the list, as are numerous therapists, individual veterinarians, van companies, and others.

Several financial advisement companies and individuals are listed, with notes they are owed six or seven figures each. One $250,000 debt is listed for the PMG Operating Account, whose address corresponds to Meadows Gaming.

Some, though not all, of these creditors' claims are marked as disputed.

Zayat and his racing operation were named in a civil lawsuit earlier this year in Fayette County Circuit Court from New York investment firm MGG Investments, stemming from a $30 million loan he took out in 2016. MGG won a summary judgment in the amount of $24.5 million earlier this year, representing the remaining balance Zayat Stables owes on the loan. Zayat Stables has countersued, and the bankruptcy paperwork listed the final amount owed to MGG as unknown for the moment. Control of Zayat Stables has been placed into the hands of a court-appointed receiver, who has raced a few of the stable's remaining horses and sold many of them, with an aim to maximize profit in the court of liquidating the operation.

Cedarview Capital, a New York hedge fund, is owed $7.9 million. In documents filed as part of the MGG suit, Zayat indicated he had paid over $1 million in interest to Cedarview, and stated it was one of the lenders he took on alongside MGG. In emails dated January of this year, Zayat claimed to have traveled to China in an attempt to attract investors to inject cash into the stable in order to “make the company fiscally functional” and to repay MGG and Cedarview.

In 2009, Zayat Stable filed for Chapter 11 bankruptcy protection after Zayat was sued by Fifth Third Bank for allegedly defaulting on $34 million in equine loans.

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Unpaid Bills And Disappearing Horses: Court Filings Detail Dispute Between Navarro, Zayat Receivership

As the court battle between Triple Crown-winning owner Zayat Stables and New York investment firm MGG Investments rages on, court documents filed this week show the receiver tasked with managing the diminishing stable has faced a challenge from indicted trainer Jorge Navarro.

Elizabeth Woodward, director of forensic accounting and litigation support at Dean Dorton Allen Ford, was appointed by a Fayette Circuit Court in January to manage the stable's assets. This primarily involves selling horses at public auction or overseeing the continued racing careers of some in hopes of increasing their value. As news spread earlier this year of the suit, which is based on more than $24 million in loans MGG claims Zayat Stables did not repay, other creditors began to emerge

Woodward filed a motion before Judge Kimberly Bunnell this week, asking the court to certify her calculation of money Navarro is owed by the stable. Woodward claims she was in contact with Navarro over the training of Zayat runners Paynted, Mony, and Perlman after being appointed to run the stable in January. Days before his federal indictment in March on charges related to doping of racehorses, Woodward says Navarro asserted a legal claim on the horses for unpaid bills by Zayat. Upon news of his arrest, Woodward said she immediately sought to remove the three horses from Navarro's barn.

Ten days after his arrest by the Federal Bureau of Investigation, Navarro informed Woodward through attorney Bradford Beilly he planned to sell the horses to pay off the debt, which he claims exceeds $51,000.

“Contemporaneously with sending its Claim Notice, Navarro transported the Zayat Horses to an undisclosed location, without notice or permission from the Receiver, and in direct violation of the [Court] Order on or around March 19, 2020,” read Woodward's motion. “Escalating the conflict, on April 7, 2020, Navarro then scheduled a public sale for April 17, 2020 … Though it was unclear how Navarro could hold a commercially reasonable public sale as required by Florida statute at a time in which the state was closed for commerce by executive order and the horses themselves were secreted away to an unknown location, the Receiver took immediate steps to stop the proposed sale.”

Woodward secured a bond for the amount Navarro claimed he was owed and secured the horses nine days later and sold them at the Fasig-Tipton July Horses of Racing Age Sale for a combined $112,000.

Because of the specific expenses allowed and disallowed by Florida laws governing liens, Woodward now says the stable owes Navarro less than he claims. Previous findings in the case suggest the receiver isn't subject to bills incurred by the stable under Zayat's control, and only certain types of expenses such as feed and stabling (but not training) are permitted for agister's liens in Florida, according to Woodward's motion.

Rudy Rodriguez was awarded a $394,437.19 judgment for unpaid training bills by a New York court, and is hopeful he can collect his money before MGG is paid back from proceeds of sales or race purses by Zayat horses.

In other news related to the case this week, Judge Bunnell dismissed with prejudice MGG's claims against Bemak International, which facilitated a sale of American Pharoah breeding rights from the Zayat family to Orpendale. MGG is appealing that dismissal.

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Analysis: Fasig-Tipton Racing Age Sale Marked Latest Chapter Of Lengthy Zayat Stables Dispersal

The dismantling of Zayat Stables' equine stock in order to pay off a multi-million dollar trail of debt has spanned months of public and private transactions, and the latest stop on that road once again proved that the perception of value can vary wildly between a seller and the marketplace.

Six horses under Zayat ownership were offered Monday at the Fasig-Tipton July Horses of Racing Age Sale, bringing a combined $337,000.

The same group of six horses were valued at a combined $3.5 million in an assessment of owner Ahmed Zayat's equine holdings submitted to creditor MGG Investments in mid-December 2019 as a liquidation plan to pay off a $23-million loan and stave off a lawsuit. MGG ultimately filed suit in late January over allegations that Zayat had defaulted on the loan, and Zayat's equine operations were placed in the hands of a third-party receiver to maximize income for paying off creditors through racetrack earnings and liquidation of the stable.

A lot can happen in seven months to fluctuate the value of a Thoroughbred, and assigning valuation to a horse is far from an exact science, but bringing in 9.62 percent of assessed value through the sale ring is a remarkably wide gap in opinion.

In comparison, six Zayat horses were offered in February at this year's Fasig-Tipton Kentucky Winter Mixed Sale with an estimated value of $1.9 million, and just four of the six finished above reserve for a combined $366,000 – about 19 percent of the estimated total. One mare, offered in-foal to American Pharoah, accounted for $310,000 of that total amount.

Though the chasm between hopeful assessment and market reality for the July offerings was Grand Canyon-sized, the explanation for the far-flung differences goes far beyond the extremely generous valuations.

First, there is the issue of timing. One method of assessing value to a Thoroughbred is through income projection – basing their worth on their opportunities to achieve in the future as much as what they already have achieved.

This is the most apparent among the July offerings in Salow and Zyramid, a pair of colts who were 2-year-olds at the time of the assessment. Both colts are well-bred, meaning a stallion career would be easily attainable with a few graded stakes wins, especially on the Triple Crown trail or in the Triple Crown races themselves. Every 2-year-old in December is a potential lottery ticket with a few fortunate bounces, and their respective seven-figure values reflect that potential.

Fast-forward to July, and many of the doors that were open seven months ago are now closed, as many of the elite 3-year-old races have been run. Even with the Kentucky Derby and Preakness Stakes pushed back into the fall due to COVID-19, the opportunity to become a Triple Crown winner already left the station without either horse even in the gate for the race, and past form suggests a monumental jump in form would be needed to join the elite in their class.

Salow, a 3-year-old son of Distorted Humor, was ultimately the centerpiece of the Zayat slate at the July sale, going for $175,000 after winning on debut in a Gulfstream Park turf race on July 3. Zyramid, on the other hand, has been winless since last year's Saratoga meet and sold for $20,000, tied for the lowest of the group.

Though his value took a hit due to the opportunities that are no longer available to him, Salow was the rare horse in the Zayat dispersal to offer some semblance of blue sky on his resume, with his 2 3/4-length debut win.

This brings about the second point toward the price gap in the dispersal offerings – the horses didn't do much to help themselves in the time between the assessment and the sales.

None of the horses were stars before or after the December assessment, but just 27.6 percent of the six horses' combined $199,545 in career earnings at sale time came after the assessment. This is with two of the horses being unraced at the time of the valuation, and another two having raced just once. Four of the six entered the sale as maidens. Whether an assessor is basing their valuation on comparative value with other horses with similar resumes or by earning potential, the projection is going to take a dive as the spring rolls into summer.

This was most apparent in the case of Super Sol, a 5-year-old Awesome Again horse who was valued at $500,000 in the December assessment. It was a generous figure for a horse with no black type whose only start of 2019 came on Jan. 6, and he just made his 2020 debut during the recent Keeneland summer meet, where he finished last in an optional claiming race.

Working in his favor was a bit of back class. The horse won two races in a row in Southern California during his 3-year-old season, breaking his maiden by four lengths and taking a Los Alamitos Thoroughbred meet optional claimer by three lengths.

Super Sol went on to sell for $30,000.

Zyramid also had one of the longer resumes of the group, winning once and making 88 percent of his lifetime earnings before the December assessment. He was tried in the Grade 2 Saratoga Special Stakes and G3 Iroquois Stakes, but finished well off the board on both occasions. His 3-year-old season started with a distant third in an Oaklawn Park allowance, followed by far-back out-of-the-money tries at Oaklawn and Lone Star Park.

Salow was the only horse in the group to earn five figures post-assessment, making $24,000 for his maiden score. That victory alone made the colt the fourth-highest earner for the Zayat Stables operation in 2020.

Rounding out the group were Mony, Perlman, and Paynted, a trio of 4-year-old lifetime maidens who were valued from $300,000 to $400,000 in December, and sold at a high point of $60,000 (Mony) and a low of $20,000 (Paynted).

Mony, a son of Scat Daddy, has shown the most upside of the group. In addition to being a son of Scat Daddy, whose foals have become increasingly scarce and sought after following the sire's untimely death and the Triple Crown success of son Justify, Mony most recently finished a gaining second in a Gulfstream turf maiden special weight on July 5.

One final factor that's important to note in the review of the dispersal against its original valuation is intent.

Several of the horses pointed for the July sale in the December assessment have since been sold privately, including River Boyne, who found new owners after winning the G2 San Gabriel Stakes in January. He was valued at $750,000 in the assessment, at which point, River Boyne had never won a graded stakes race.

There is a strong likelihood that the horses that were pointed toward the July sale and made it all the way to the ring were ones where attempts to move on from them privately were unsuccessful. In that case, the open market becomes the most efficient way to turn the horses into cash, even if it's for pennies on the dollar from where they were appraised.

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