Long before Triple Crown winner American Pharoah was born, he was almost repossessed.
This year’s Kentucky Derby, Preakness Stakes and Belmont Stakes winner came from a pair of racehorses whose unborn foals were collateral for a loan that went bad in 2010.
By putting his stables into bankruptcy, owner Ahmed Zayat shielded the thoroughbreds from creditors, giving him the chance to keep the first horse since 1978 to win the premier U.S. horse racing series for three-year-olds.
“Things have been unbelievable since then,” Zayat said in an interview.
Before it filed for bankruptcy in 2010, Zayat Stables LLC had run up more than $38 million in debts, mostly to Fifth Third Bank, which accused Zayat of trying to dodge a requirement that he personally repay a loan if his company couldn’t.
He also owed a thoroughbred auction house, Keeneland Association Inc., almost $2.4 million for horses, according to bankruptcy court papers.
In the run-up to the stables’ February 2010 bankruptcy filing, Zayat traded allegations of unfair business dealings and improper conduct with his creditors. The Chapter 11 case temporarily halted Fifth Third Bank’s effort to repossess $37 million worth of horses, including American Pharoah’s parents, Pioneerof the Nile and Littleprincessemma.
Borrowed Millions
Zayat, who made his millions selling an Egyptian drinks company to Heineken NV, set up his stables in Hackensack, New Jersey, in 2005, investing $40 million and over time borrowing $34.5 million from Fifth Third.
When the stables defaulted, the bank tried negotiating, but four rounds of talks failed, mostly because Zayat demanded a release from his personal repayment guarantee, Fifth Third said in court papers.