By T. D. Thornton
Claiming access to only $300 in cash and $14.22 in two checking accounts, Ahmed Zayat, the financially embattled Triple Crown-winning breeder and owner, filed for Chapter 7 protection Sep. 8 in United States Bankruptcy Court in his home state of New Jersey.
In court documents, 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 who are due $14,755,1717 in “non-priority unsecured claims.” In his legal filing, Zayat marked most of those debts as “disputed.”
Under Chapter 7 bankruptcy laws, non-priority unsecured claims are at the bottom of the hierarchy to get paid—if they get paid at all—once a trustee is appointed to liquidate assets and discharge debts.
Zayat's family-owned racing operation, Zayat Stables LLC, is listed as a co-debtor to 112 of those 132 non-priority unsecured claims. In the filing, Zayat described his racing business as “insolvent.” He noted that a Kentucky receiver is in the process of liquidating those equine assets as a result of an ongoing $23 million lawsuit filed in January by a New York lender alleging fraud and loan defaults.
Zayat's personal assets are primarily comprised of a single-family home in Teaneck (with adjacent unbuilt-upon lots) that has an estimated valuation of $3.55 million. His filings claim $1.775 million in equity in that property.
Zayat is claiming zero dollars in current monthly income. His filing indicates that his household's income is entirely comprised of $13,875 in monthly wages that his non-debtor spouse earns as a speech pathologist. Two dependent children live with Zayat and his spouse. He reports monthly liabilities of $72,903 and claims to own no stocks, bonds, or pension accounts.
Five entities head the list of $4,616,294 in claims secured by the family residence via mortgages or loan agreements. Upon liquidation, they would get paid first according to Chapter 7 protocols.
The Internal Revenue Service and 12 individual state taxation agencies have the next dibs on debt as priority unsecured claimants. Each is listed as being owed “unknown” amounts.
Among the non-priority unsecured claimants who would be last to get paid (if at all) are trainers Rudy Rodriguez ($394,437), Richard Baltas ($316,070), Bob Baffert ($227,884), Brad Cox ($194,836), Todd Pletcher ($125,598), Mike Maker ($120,921) and Steve Asmussen ($102,541).
The documents state that Zayat has non-priority unsecured debts to the shipping company Brook Ledge of $164,401, and there are over $200,000 in debts from veterinary providers including Hagyard Equine Medical, Kentucky Equine Medical Associates, Kesmarc, Rood & Riddle, Stephen Selway, and Teigland, Franklin & Brokken.
By far the largest debt on the list is the $7.9 million listed for the Manhattan-based Cedarview Capital Management LP.
Zayat's bankruptcy filing will undoubtedly have ripple effects upon the four cases of civil litigation in which he stated he or his racing company are currently defendants. The most prominent among them is the above-mentioned $23 million suit filed by MGG Investment Group, LP, in Fayette Circuit Court in Kentucky.
That lawsuit revolves around accusations that Zayat Stables hid the proceeds from the sale of nine lifetime breeding rights shares to 2015 Triple Crown winner American Pharoah, plus at least 15 other “valuable racing Thoroughbreds” held as collateral, including retired Zayat color bearers and bloodstock-rights assets Bodemeister, Eskendereya, El Kabeir and Zensational.
A hearing in that case had already been scheduled for Sep. 9, and the court overseeing that suit and the parties to it have already been notified of Zayat's Tuesday bankruptcy filing.
Years before Zayat Stables bred and raced champion American Pharoah, Ahmed Zayat was in the news and in the courts for money troubles. In 2009, Fifth Third Bank sued Zayat for $34 million, alleging he had defaulted on loans.
That suit resulted in a 2010 federal bankruptcy court deal to repay the loans while reorganizing Zayat Stables. At the time of settlement, Zayat said in a statement that “Zayat Stables will come out of this in a stronger financial position than ever, and it will allow us to devote all of our energies to what is most important: nurturing, developing, and racing the next generation of great American horses.”
According to the U.S. Courts website, Chapter 7 bankruptcy protection provides for liquidation of a debtor's non-exempt property and the distribution of the proceeds to creditors.
However, to qualify for Chapter 7, a debtor must first meet strict income requirements. If a debtor's current monthly income is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive.
If a debtor doesn't pass the means test, filing for Chapter 13 bankruptcy could be an option. But that version pays off debt through a repayment plan over a three- or five-year period instead of via liquidation.
The court on Wednesday appointed a trustee to oversee the bankruptcy. She is Barbara Edwards, an attorney based in Fair Lawn, New Jersey.
An Oct. 5 telephonic hearing date has been set, at which Zayat is required to attend and face under-oath questioning. Creditors may attend, but are not required to do so.
The deadline for anyone wishing to object to the bankruptcy discharge or to challenge whether certain debts are dischargeable is Dec. 4.
In the Sep. 9 filing that appointed the trustee, the court added a notation that reads, “No property appears to be available to pay creditors. Therefore, please do not file a proof of claim now. If it later appears that assets are available to pay creditors, the clerk will send you another notice telling you that you may file a proof of claim and stating the deadline.”