Sunday, June 6, 2010

They Repo Horses Don't They?

In the past six months, the Thoroughbred industry has been rocked by one multimillion lawsuit after another. Altogether, Central Kentucky banks are suing horsemen for at least $54.4 million.

By some estimates, that would be equivalent to 5 percent to 10 percent of the equine lending market tied up in troubled debts, a potentially significant stone around the neck of an already struggling horse industry.

Each lawsuit is unique, but one thread runs through them all: The loans were collateralized with horses.

So to pay the loans off, horses will have to be sold. How much the banks recover will depend on the Thoroughbred market, which has lost at least 40 percent of its value in the past two years.


Farms that relied on lines of credit for operating capital have had those lines cut in half because the value of the collateral — the horses — has fallen.

If a significant portion of the farm's credit was already tied up in stud fees, then even selling the horses might not be enough to keep them going.

"The primary event that needs to occur (to right the industry) is for the prices in the market to return to some sense of normalcy," Beck said. "If the market turns back up, the lending relationships will get a little softer."
Another prominent equine attorney in Lexington, Mike Meuser, said that last year's sales were a harsh reality check for the market, but this year's will be even more critical.

"This is the sale that's going to be difficult and telling," Meuser said.


So how do you repo a horse anyway? It is not like you can hook them with a tow truck and then scamper off with them. Next time you read an add for a Mustang, be extra careful in riding the fine print. Your Mustang may just run on hay instead of gasoline.