The Yellowstone Club Debacle
CrossHarbor Wins Inside Track In Yellowstone Club Bankruptcy
With primary lender Credit Suisse unable to raise capital, a bankruptcy court approved new financing from the Boston-based hedge fund led by Sam Byrne.By Robert Struckman, 11-26-08
Image from the Yellowstone Club's Web site.
A hard-fought struggle for control of the bankrupt Yellowstone Club ended mid-afternoon on Wednesday when a federal bankruptcy judge gave CrossHarbor Capital Partners, a Boston-based hedge fund, the right to loan the club $20 million while it reorganizes its debt - a process that will likely last until the end of April.
U.S. Bankruptcy Judge Ralph B. Kirscher issued his order after weeks of negotiations and three days of court testimony.
The Yellowstone Club filed for bankruptcy protection on Nov. 10, citing debts of more than $360 million, with about $311 million owed to investors assembled by international bank Credit Suisse.
In early November, owner Edra Blixseth testified in court, the club’s bank accounts stood virtually empty. Its credit with local food purveyors and other vendors was worthless.
Without what’s known as a debtor-in-possession (DIP) loan package, the luxurious-but-broke club would have been forced to close immediately.
Credit Suisse provided the first DIP loan, about $4.5 million to operate the club through the end of November. The loan came with long strings, which Credit Suisse used to secure its rights to get repaid first when the club gets sold, an eventuality that seems almost certain. As the primary creditor, Credit Suisse carries a lot of legal weight in the bankruptcy proceedings.
But when it came time for Credit Suisse to provide a larger financial package to get the club through the ski season, it was unable to round up the money, and the deal collapsed just one short hour before court opened on Tuesday, sources said.
CrossHarbor stood ready to fill the vacuum, and had a one-page term sheet ready for negotiations within minutes. Judge Kirscher delayed the hearing to afford the parties time to talk. But after six hours, no agreement had been reached.
CrossHarbor, led by investor Sam Byrne, has invested about $100 million to buy real estate and build houses and condominiums at the club, and the company labored for more than a year to buy the club from founder Tim Blixseth before negotiations collapsed last spring. Tim Blixseth’s ex-wife Edra won control of the club in August, after a bitter divorce.
Even though it did not in the end have a rescue plan of its own, Credit Suisse still objected to the CrossHarbor plan because it puts CrossHarbor’s loan ahead of Credit Suisse’s if and when the club is able to repay its debts.
Credit Suisse’s lawyer indicated he would rather the judge allow the club to be closed and its assets sold off as quickly as possible rather than give CrossHarbor preferential position in the creditor lineup. Such a move would have allowed the special mystique of one of the nation’s preeminent private playgrounds for the rich to simply evaporate, taking much of the club’s value along with it.
But the judge indicated he didn’t like a plan that would likely destroy much of the club’s value and thus be detrimental to all creditors—not to mention club members, employees and the economies of Bozeman and Big Sky.
Under the CrossHarbor deal, which club members greeted with enthusiasm, members agreed to pay accelerated dues to raise another $5 million to help run the club through the ski season, when its employee count reaches almost 1,000.
A lawyer representing a group of club members said, “In the past and by its actions this week in court, CrossHarbor has demonstrated its commitment to keeping the club operating on a normal basis through the upcoming ski season.”
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As I think is evident to almost everyone, New West has no agenda here other than reporting on the story the best we can. Our investors appreciate that we are a journalism organization and certainly have never pressured us on this or any other story.
I will continue to delete comments that are in violation of the comment policy.
Can anyone think beyond investors and profit when considering whom gets hurt if a company or entity collapses, in this case the YC? Any business or entity's success creates jobs and tax revenue (in the case of YC, massive tax revenue). A venture's prosperity or failure impacts more than just the Mortimer and Randolph charicatures that are repeatedly implicit in the heads of some of the authors on this blog. I suggest if anyone has any interest in a solution that helps people, that they think about the impacts of the success of YC and then focus solely whom can shepphard that success over the long term. The histronics associated with the players involved are a mere footnote. At this point however, that footnote appears to read as follows: one capital source has a long-term vested interest in the success of the Club and that firm is Cross Harbor out of Boston, MA.
I don't know Cross Harbor's favorite color I'm not sure if they enjoy long walks on the beach, and I'm pretty sure they like Barry White because everybody likes Barry White. I am not "for" or "against" Cross Harbor as an entity, nor should anyone be. I am simply "for" a solution that helps people.
As another aside, if any author's intentions are more subversive and he or she is trying to prevent an optimal long term resolution for the YC outcome because of some personal economic vested interest, I suggest the author avoid mirrors or else channel energies towards choosing between the race car and the thimble; it would be far less destructive and maybe the author would be able to look in mirrors again. Maybe his or her soul would even take them back. I'd suggest starting with an apology, a couple of candles, some white zin and a large dose of Barry White.