Hawthorne Race Course - Chapter 11 Case Summary

Business Description

Headquartered in Stickney, Illinois, Hawthorne Race Course, Inc. ("HRC"), along with its Debtor affiliates ("Debtors"), operate a thoroughbred and harness horse racing facility and off-track betting network under the regulatory oversight of the Illinois Racing Board ("IRB") and the Illinois Gaming Board ("IGB").

• Carey Heirs Properties, LLC ("CHP"), an Illinois limited liability company, owns the underlying real estate and certain improvements located at the Hawthorne Race Course, 3501 S. Laramie Ave., Cicero, Illinois.
• CHP leases the racetrack to HRC to conduct thoroughbred horse racing meetings and to Suburban Downs, Inc. ("SDI") to conduct Standardbred (harness) horse racing meetings.

HRC operates multiple revenue-generating activities including live pari-mutuel wagering on thoroughbred horse racing, simulcasting wagering of horse racing programs from in-state and out-of-state locations, food and beverage operations under its wholly-owned subsidiary Post Time Catering, Inc., sportsbook wagering, advance deposit wagering from funded accounts, and off-track betting facilities through its operating division, Hawthorne OTB ("OTB").

• HRC currently operates 10 OTBs throughout Illinois at Joliet, Crestwood, Villa Park, Rockford, Oakbrook Terrace, Hoffman Estates, North Aurora, Evergreen Park, Lansing and McHenry, with Prospect Heights temporarily closed due to fire.

SDI conducts Standardbred (harness horse) race meetings, pari-mutuel betting and simulcast wagering at the racetrack and HRC's OTBs when HRC is not holding a thoroughbred meet.

Post Time Catering, Inc., an Illinois corporation and wholly owned subsidiary of HRC, provides food and beverage services at the racetrack.

The Company generates wagering receipts from live pari-mutuel wagering at HRC and at its off-track betting facilities.

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Corporate History

The Company's origins trace back to 1909, when Thomas Carey purchased the racetrack property and ran a horse racing business through the years. Upon the death of Thomas Carey, the ownership and operation of the racetrack was passed in eight equal interests, one each to his seven children and one to his wife's family.

• Through the years and by design, the ownership and operation of the racetrack have remained in those original family groups and, because two of Thomas Carey's children were unmarried and did not have any children of their own at the time of death, through death and descendancy, ownership now consists of six family groups.
• The recent deaths of two members will result in those shares being held for their descendants.

Carey Heirs Properties, LLC

CHP is owned by seventy-seven (77) members many of whom, but not all, are shareholders of HRC and/or SDI.

• Most of the members of CHP and the shareholders of HRC and SDI are descendants of Thomas Carey.
• CHP is governed by a board of managers consisting of three managers.

Hawthorne Race Course, Inc.

HRC and its predecessors have been licensed by the IRB prior to the destruction of the racetrack in 1978 by fire, and continuously since its reconstruction.

• Prior to 1979, the year in which HRC was incorporated, the Estate of Thomas Carey, an Illinois general partnership, d/b/a Hawthorne Race Course owned and operated the racetrack.

HRC is also mostly owned by the descendants of Thomas Carey, and similarly to CHP and SDI, is owned in six family groups. The shareholders of HRC are comprised of fifty-eight (58) shareholders plus four trusts, each with a single beneficiary.

• The recent deaths of two shareholders will result in their shares being held for their descendants.
• The HRC shareholders are similar to, but not exactly the same in name or percentage as, the shareholders of SDI.
• HRC is governed by a Board of Directors currently consisting of nine directors.

In 2019, in conjunction with the development of Illinois' first Racino entertainment complex (the "Racino") featuring both casino-style wagering and horseracing, Kevin Kline was named CEO of Gaming for the Hawthorne Casino and Race Course, a division of HRC.

• In July 2020, the IGB unanimously found HRC to be preliminarily suitable for an organizational gaming license.
• In July 2021, the IGB voted unanimously to find Timothy Carey (as Owner, Board Member, President and CEO) and Kevin Kline (as CEO of Gaming), as well as the eleven other HRC owners and board members suitable as key persons of HRC.
• The other HRC shareholders (both individuals and Trusts) have also been found suitable to hold an ownership interest in HRC.

HRC was also awarded retail, mobile, and online sportsbook wagering licenses. Such wagering was operated by PointsBet USA under a licensing agreement with HRC.

• During 2023, the shareholders of PointsBet USA agreed to the sale of its US operations to Fanatics, a subsidiary of Fanatics Holding Inc. and in May of 2023, HRC and Fanatics signed a letter of intent framework to enter into a definitive agreement based substantially on HRC's agreement with PointsBet.
• On January 26, 2026, Fanatics terminated the mobile and internet portion of the agreement with HRC but continued to provide retail services at the racetrack and the OTBs eligible to offer sports wagering.

Suburban Downs, Inc.

SDI has been granted a license to operate by the IRB since before 1998, from 2002 to 2008 and continuously from 2016 until January 26, 2026 when the IRB suspended SDI's license.

• SDI is also mostly owned by the descendants of Thomas Carey, and similarly to CHP and HRC, ownership remains in six family groups.
• The shareholders of SDI are comprised of fifty-eight (58) shareholders, including five trusts.
• The recent deaths of two shareholders will result in those shares being held for their descendants.
• The SDI shareholders are similar to, but not exactly the same in name or percentage, as the shareholders of HRC.

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Operations Overview

Thoroughbred racing is critical to cash flow because it drives on-track wagering, OTB wagering, and intertrack and out-of-state wagering. The Debtors earn a share of wagering revenue when hosting races.

• OTB and intertrack earnings are reflected in the DIP budget under the line item "Out of State Earnings."

According to the Illinois Racing Board, failure to conduct the thoroughbred meet jeopardizes the Debtors' racing license. The Debtors' casino license is contingent upon maintaining that racing license.

• Based on discussions with potential buyers and recapitalization partners, the casino license is essential to maximizing enterprise value and achieving a successful reorganization.

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Prepetition Obligations

As of the Petition Date, the Debtors reported approximately $51.6 million in total obligations to Signature Bank, N.A. ("Signature Bank"), alongside additional secured and unsecured debt. The Company's prepetition capital structure is summarized below:

Signature Bank Facilities

Signature Bank is the provider of the Debtors' senior secured credit facilities (the "Signature Facilities") and served as the central source of liquidity for both racing and Racino development activities.

• As of December 31, 2025, the Debtors had outstanding a revolving line of credit of approximately $15 million alongside a suite of term loans: Term Loans A, E, F, G, H (drawn in two tranches), I, and a $5 million Bridge Loan totaling $35.1 million in combined term debt and revolver exposure.
• These loans carry interest rates ranging from a fixed rate of 10% to floating structures tied to prime plus a spread, resulting in $1.0 million of interest accrued as of December 31, 2025.
• In addition to contractual interest, the Signature Facilities include substantial back-end financial obligations: $6.1 million in exit fees across Term Loans F, G, H, and I, which materially increase the effective cost of capital.
• When combining principal, accrued interest, and exit fees, the Debtors' estimated total obligations to Signature Bank were approximately $51.6 million as of February 24, 2026.
• In December 2025 and January 2026, Signature Bank froze all of the Debtors' accounts.

Latto Capital Loan

• In 2025, Latto Capital LLC provided a $5.0 million term loan secured by the Debtors' real estate.
  • This loan is secured by a second-priority lien on the Debtors' real estate, subordinate to Signature Bank's liens.

Carey Trust Loan

• On or about February 20, 2026, the Marital Trust of Robert F. Carey Jr. UAD November 15, 1987 (the "Carey Trust") made a loan to Hawthorne in the principal amount of $300,000.
  • To secure its repayment obligations, Hawthorne granted a junior mortgage to the Carey Trust on the Crestwood Property.
  • The mortgage was recorded on February 24, 2026.

Unsecured Obligations

• The Debtors also carry a layer of unsecured obligations, primarily consisting of subordinated related party notes and racing working capital borrowings that are not collateralized by the Debtors' assets.
• These instruments feature flexible or long dated maturities, and function as subordinated support capital used to fund racing operations, facility needs, and liquidity gaps.

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Events Leading to Bankruptcy

Industry Pressures and Operational Disruptions

The Debtors have faced substantial financial hardship in recent years, driven by challenges affecting the horse racing industry in Illinois, initially due to the expansion of casino gaming and later compounded by an increasingly competitive sports betting market, as well as other industry-wide issues, including rising costs and increased regulatory fees.

• This hardship has been further exacerbated by the recent suspension of SDI's organizational license and the termination of its harness racing meet; the termination of internet and mobile sports wagering by HRC's sports wagering partner; and the discontinuation of certain simulcast wagering arrangements by other horse racing tracks throughout the United States, resulting in litigation and monetary judgments against the Debtors.

Liquidity Crisis and Failed Out-of-Court Restructuring

The Debtors have been unable, outside a bankruptcy process, to attract capital, due to the economic stress created by its tepid relationship with its lender Signature Bank among other reasons.

• The Debtors, due to a citation to discover assets issued by Churchill Downs Incorporated, a judgment creditor with a judgment in the amount of $1,546,266, have not been able to utilize their revenue stream and Signature Bank has been unwilling to advance funds to pay payroll and employee benefits, track changeover to thoroughbred racing season, amounts due to the horsemen community for services and racing provided, utilities, insurance, professionals, tax and regulatory fees, and other miscellaneous obligations.

To assist the Debtors, Signature Bank provided the Debtors with its land-only appraisal (not valuing the improvements, off track betting parlors and other assets) which reflects a value of approximately $95 million as of August 7, 2025.

• The Debtors believe that their value significantly exceeds the $95 million reflected in the appraisal and have received numerous expressions of interest from third parties regarding a potential recapitalization of its business.
• These parties have indicated that, in light of the circumstances described above and other considerations, they are willing to proceed only within the context of a bankruptcy process.
• Prior to the Petition Date, many of these interested parties executed non-disclosure agreements and reviewed extensive documentation and other material information made available by the Debtors' financial advisors through a data room and other means.

Cancellation of Harness Racing Season

The Debtors' 2025-2026 harness racing season began on November 11, 2025 and was scheduled to run through February 15, 2026. On December 28, 2025, the Debtors cancelled the remaining fifteen (15) race dates due to liquidity constraints.

• The primary unpaid obligation related to horsemen's purses. Although purse checks had been issued prior to Signature Bank's freezing of the Debtors' accounts, they could not be deposited once the accounts were frozen.
• The Debtors' horsemen declined to continue racing until they were made whole. Signature Bank refused the Debtors' requests to advance funds to honor the outstanding checks.

Simulcast Disruptions and Revenue Decline

The Debtors fell behind on settlement payments to host tracks, resulting in the following disruptions: (i) simulcast partners terminated signal transmissions to the Debtors; (ii) the Debtors were unable to receive simulcast signals; (iii) the Debtors were unable to export their own signals; and (iv) Fanatics terminated the mobile and internet portions of its agreement with HRC (collectively, the "Disruptions").

• Prior to the Disruptions, the Debtors received approximately $5 million per month in wagering deposits. As a result of the Disruptions, monthly wagering deposits have declined to well under $1 million.

DIP Financing Efforts

Following Signature Bank's freeze of the Debtors' accounts, management determined that an infusion of outside capital was necessary. The Debtors sought to obtain a priming credit facility sufficient to fund operations through a sale process.

• This effort was led by Getzler Henrich, as the Debtors' financial advisor, which commenced an outreach process in early January 2026.
• Getzler Henrich contacted thirty-five (35) potential lenders, fourteen (14) of which expressed interest, and five (5) of which executed non-disclosure agreements. The process ultimately resulted in the Debtors receiving three (3) term sheets.

After evaluating proposals from the three prospective DIP lenders, the Debtors selected a proposed priming debtor-in-possession financing facility (the "DIP") from JDI Loans LLC.

• The proposed facility provides up to $16 million in financing with a 120-day term.
• The DIP offers the most cost-efficient structure while preserving liquidity. The projected interest and fees under the DIP are approximately $865,000 and $152,000 lower, respectively, than those proposed under the other two term sheets.
• In addition, Getzler Henrich successfully negotiated the removal of a $2.25 million interest reserve, thereby reducing the overall loan size and associated fees.

Chapter 11 Filing and Go-Forward Strategy

Facing depleted liquidity and limited options, the Debtors filed for Chapter 11 protection on February 27, 2026, in the U.S. Bankruptcy Court for the Northern District of Illinois.

• The Debtors filed for chapter 11 to complete a sale of substantially all of their assets free and clear of liabilities under section 363. The Debtors remain hopeful that they may find a suitable buyer interested in a going concern sale.
  • A reorganization is a possible avenue to restart operations if the Debtors are able to come to an agreement with a party to recapitalize the Debtors as part of a plan process for resolving the Debtors' other liabilities.
  • Nevertheless, the Debtors are focused on using the process afforded by section 363 of the Bankruptcy Code to maximize recovery to their creditors.
• To help execute this strategy, Getzler Henrich will coordinate the sale with respect to all assets and particularly to evaluate potential going concern sales for some or all of the assets in addition, or in the alternative to, sales of the physical assets. With the aid of these experienced professionals, the Debtors will execute a comprehensive marketing strategy with respect to all of their material assets.

The Debtors' thoroughbred racing season is scheduled to begin on March 29, 2026. To conduct the meet, horsemen must be made whole, including payment of accrued purse balances and replacement of returned checks issued for unpaid purses.

• The Debtors' DIP budget allocates $3.91 million in week one of these chapter 11 cases to restore purse balances, which is critical to the ongoing viability of the Debtors' business.

The DIP budget assumes that simulcast partnerships will be reactivated over the first four weeks of these chapter 11 cases. Management has identified the highest-margin simulcast partners for priority reactivation.

• Certain simulcast partners may require partial payment of prepetition balances as a condition to reinstatement.
• The DIP budget provides for $750,000 in critical vendor payments over a thirteen-week period. Reactivating simulcast signals could increase collections by approximately $4.0 million per month.
• These payments are expected to generate a significant return by restoring liquidity and wagering revenue streams.

Retained Professionals

• Saul Ewing LLP — General bankruptcy counsel
• Getzler Henrich & Associates LLC — Financial advisor
• Carey White Boland Murnighan & Murray, LLC — Special corporate counsel
• Omni Agent Solutions, Inc. — Claims agent and administrative agent