Ahmed Zayat, owner of top Kentucky Derby contender Eskendereya, has fired back at Fifth Third Bank, asking a bankruptcy judge to declare the bank's claims of default are bogus.
In an adversary complaint filed Monday in New Jersey, Zayat asked U.S. Bankruptcy Judge Donald H. Steckroth to hold Fifth Third to promises the bank allegedly made in July 2009 to restructure loans made to Zayat.
The bank claims Zayat defaulted on a loan payment, and he now owes the entire outstanding principal (more than $34 million as of February) lent to him to build his racing stable.
To satisfy the debt, the bank sought to take over his stable of more than 200 horses, including Eskendereya. Zayat declared bankruptcy in New Jersey in February to block that move. Zayat's stable, established in 2005, is one of the most successful in the country. Last year, Zayat's Pioneerof the Nile finished second in the Kentucky Derby, and the stable made more than $6.3 million on the track alone.
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Now, Zayat wants the court to declare that the default declaration is void and that "no principal, interest, default interest or other payments are presently due and owing from Zayat Stables to the Bank with respect to the loans."
He also asked the court for compensatory, consequential and punitive damages for "multimillion-dollar lender liability claims arising out of a long-standing pattern of misleading, deception and predatory lending practices."
Zayat was traveling and could not be reached for comment. Fifth Third's attorney also was unavailable.
The businessman born in Egypt alleges that Fifth Third engineered a disastrous credit crunch to call in his loans. Zayat told the court internal bank records show that 48 hours after agreeing to restructure the loans, bank officers reaffirmed a strategy to "exit" Zayat Stables "as quickly as possible."
In Monday's filing, Zayat said the bank continually reassured him they had a deal in place, even after sending a notice of default in late August. Based on those reassurances, Zayat withdrew horses from sales at Keeneland. He had planned to sell those horses to make loan payments.
In previous filings, Fifth Third has said the bank declared Zayat in default when it became apparent he would not agree to any restructuring that did not release his personal guarantee of the loans. The bank sued Zayat in U.S. District Court in Lexington in December and sought to foreclose on the horses. Zayat filed a counterclaim in that court as well.
In March, Fifth Third filed motions in Lexington to lift the stay on that case, grant summary judgment against the stable and dismiss Zayat's counterclaims.
On Monday, Zayat responded, opposing the lifting of the stay. He has until April 16 to file a reorganization plan to bring the stable out of bankruptcy, according to his motion.
Last month, the bankruptcy judge approved a plan worked out by Zayat and the bank to continue stable operations through May 1, the day of the Kentucky Derby at Churchill Downs in Louisville.
Meanwhile, the Kentucky Horse Racing Commission has ruled there is no reason to suspend Zayat's license to race in Kentucky based on information that he lent money to two brothers who later were convicted of bookmaking.