Resort Bankruptcies

Moonlight Basin Files for Bankruptcy Protection

By Jonathan weber , 11-19-09

	Moonlight Basin. Photo by Kip Sikora.

Moonlight Basin, the troubled Big Sky, Montana ski resort, filed for Chapter 11 bankruptcy protection on Wednesday, just a day before a foreclosure hearing that could have put the property in the hands of its primary lender, Lehman Bros. Moonlight took a loan of $100 million from Lehman Bros. in the fall of 2007 with the intention of quickly selling the resort, but the real estate meltdown scotched that plan, and the bankruptcy of Lehman Bros. itself in the fall of 2008 has left the six-year-old resort in limbo.

In the bankruptcy filing, Moonlight seeks permission to obtain $21 million in interim financing from Trilogy Capital, a Connecticut based hedge fund, which would enable Moonlight to remain open and have a ski season as planned. Lehman Bros. indicated in the foreclosure case that it also intended to keep the resort open, but the investment bank wanted to gain full control and appoint a receiver in the place of current management before it provided the funds needed to continue operations. The foreclosure proceeding, which is a state court action, is automatically put on hold by the bankruptcy filing.

Lehman Bros. is almost certain to vigorously oppose the new financing, since it comes with onerous terms and would be paid back before Lehman or any other creditor received any money. But it will now likely be left with the choice of providing its own interim funding in the context of the bankruptcy, with current management remaining in control, or perhaps trying to force a shutdown of the resort and a continuation of the foreclosure process. A number of contractors and vendors are also owed money - hundreds of thousands of dollar in some cases - and the position that those companies take could also have a significant impact on the eventual outcome.

Property owners at Moonlight also have a stake in the outcome, and some have supported Lehman - though Moonlight says that support came only with the threat of a cut-off of basic services.

Court documents show that Lehman has provided $3.6 million in funding to maintain operations since the loan went into default last fall. But Moonlight says the funds were advanced in a capricious fashion and were not sufficient to pay all the vendors.

The bankruptcy filing carries considerable risks for Moonlight and its owner, Lee Poole. Poole provided a personal guarantee on the Lehman loan, and the bankruptcy filing would trigger that guarantee, meaning that Lehman could go after his personal assets. Sources said negotiations between Moonlight and Lehman had been ongoing, but evidently no settlement was reached that would avert a drawn-out court fight.

In addition to the $100 million loan, there was an additional $70 million loan that was used to buy out Poole’s two original partners in the project, Joe Vujovich and Keith Brown. It’s not clear why the second loan is not subject to legal action thus far. Bankruptcy court experts say the payments to Vujovich and Brown could eventually be challenged in court.

Moonlight, which opened in 2003, is set in spectacular terrain on the west side of Lone Peak, which it shares with Big Sky Resort. While there was conflict in the early days, the two resorts of late have been marketing a joint lift ticket under the tagline “The Biggest Skiing in America.” Moonlight also has a half-finished Jack Nicklaus golf course, and an extensive real estate development business that includes high-end homes, condos and cabins. It employs about 250 people.

In a press release, Poole said: “With this filing, we can assure everyone - our customers, homeowners, suppliers, employees and our communities - that Moonlight Basin intends to be open for business as usual.” The opening is currently scheudled for Dec. 12.

The Moonlight situation has some analogies to the bankruptcy of the neighboring Yellowstone Club. In that proceeding, U.S. Bankruptcy Court Judge Ralph B. Kirscher gave considerable weight to the interests of employees and the Big Sky community, and Moonlight is clearly hoping he’ll take a similar stance in this case. Moonlight enjoys a lot of goodwill in the community, partly because of programs giving students free ski passes, and a number of Madison County officials and others wrote letters supporting Moonlight management in the foreclosure proceeding.

Lehman has proposed appointing a receiver named Doug Wilson, who was also the receiver in the Tamarack Resort foreclosure in Idaho. In that case, considerable bad blood developed between Wilson and other parties, in part over the fees that were charged, and he is no longer involved in that situation. Tamarack remains closed pending a foreclosure trial in February.

Moonlight alleges that its troubles are a result of a “continuing pattern of bad faith by the Lehman entities.” Moonlight engaged Lehman as an investment banker to help spearhead the sale of the property in 2007, and Lehman allegedly said it could do a quick sale in the $300 million to $400 million range and would provide the $100 million loan in the meantime. If it couldn’t sell the property, it would provide long-term financing to replace the bridge loan, Moonlight asserts.

But the real estate market was already cratering in the fall of 2007 and no deal materialized. Lehman, meanwhile, ran into its own crisis and was either unable or unwilling to provide long-term financing. Despite appraisals showing Moonlight to still be worth north of $200 million, people familiar with the situation say the value today is likely less than $50 million. 

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