Bozeman News

Bankruptcy Saga

Moonlight Basin, Lehman Bros. Reach Deal on Financing

By Jonathan Weber , 12-07-09

Averting what could have been a nasty court fight, Moonlight Basin and Lehman Bros. have reached an agreement on $24 million in interim financing that will keep the bankrupt ski-and-golf resort up and running for at least the next 18 months.

Under the agreement, which was finalized following two full days of negotiations Sunday and Monday in Butte and formally approved by the U.S. Bankruptcy Court court Tuesday morning, Lehman will provide the so-called debtor-in-possession (DIP) financing on very favorable terms, and will be able to oversee budgets and spending at resort. Moonlight had initially proposed $21 million in DIP funding from Trilogy Capital, but that deal carried very steep interest and fees, and perhaps more importantly, it was still subject to due-diligence and probably could not have been done in time to meet Moonlight’s immediate cash needs.

Lehman, which is owed some $200 million by Moonlight, was loathe to allow an outside DIP lender, as the DIP money gets paid back ahead of virtually all other claims. The deal approved Tuesday does provide for contractors who hold construction liens to be paid promptly.

Importantly for Moonlight, the deal also allows Moonlight management to use up to $1.127 million from the sale of properties that are not covered by the original Lehman liens to pursue fraud claims against Lehman, which is itself in bankruptcy.

Attorneys for both sides pushed hard to complete the deal by Monday night so that money could be wired on Tuesday. In the event, the final approval came Tuesday morning, and Lehman immediately wired $1.5 million in interim funding to meet payroll and enable the resort to open this weekend as scheduled.

William Henrich, originally proposed as a financial advisor by Moonlight, will be appointed chief restructuring office, and will work with Moonlight on a budget that will have to be approved by Lehman.

“We came to a mutual agreement that has the best interest of all Moonlight Basin stakeholders in mind,” said Moonlight founder and owner Lee Poole in a statement. “We are grateful that the outcome today will allow us to form a sound long term restructuring plan, have our day in court with Lehman, and most importantly, continue operations for the next two ski seasons.” Moonlight, which was founded in 1992 and opened its own ski area in 2003, is next door to Big Sky Resort and occupies spectacular and remote terrain adjacent to the Lee Metcalf Wildnerness.

Moonlight contends that Lehman had promised to either find a buyer for the resort or provide long-term financing as part of a $170 million short-term loan package that was completed in Sept. of 2007. But neither a sale or a new loan deal occurred, and Lehman moved to foreclose on the property in September. Moonlight plans to try and have its repayment obligations to Lehman reduced or eliminated based on the investment bank’s alleged failure to fulfill its promises.

Lehman argues that it made no promises, that it couldn’t sell or refinance the property because of the real estate collapse, and that Moonlight had waived its claims in any case when it was granted an extension on the loan.

Whatever might happen in that legal battle, Moonlight still faces a big challenge in finding a long-term solution. Without real estate sales, which most experts don’t expect will recover for several years at least, Moonlight runs a deficit of more than a million dollars a month. An eventual sale of the resort remains the most likely outcome.

This story was updated and re-written to reflect developments late Monday and Tuesday.

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