Resort Bankruptcies

Showdown Looms on Moonlight Basin Financing

By Jonathan Weber , 12-03-09

	Moonlight Basin. Courtesy photo.

For the bankrupt Moonlight Basin ski resort, the good news is that two entities stand ready to provide cash to operate the property through the ski season. The bad news is, tensions between Moonlight management and lender Lehman Bros. are running high, and a bankruptcy court hearing in Butte on Monday could turn into an ugly showdown over the terms of the financing and who exercises management control.

On the one side stands Moonlight founder and owner Lee Poole, chief operating officer Russ McElyea and the rest of the resort’s management team. They are fighting hard to remain in place, and they’ve garnered a lot of support from the community. Dozens of affidavits filed in a related state court action show that Poole & Co. have strong backing from the Madison County Planning Board and a number of local businesses and homeowners; they all praise Poole’s vision in developing the property, and the close attention he and his team have paid to environmental and land-planning issues since the project was launched some 17 years ago.

“Lee Poole is a Montanan. I have never heard him lie. If he says he will do something, it will be done! In my dealings with Moonlight Basin, he has instilled this so important quality into everyone that works for Moonlight Basin and him,” said David Schulz, chair of the Madison County Board of Commissioners, in his affidavit.

Moonlight management has lined up a $21 million “debtor in possession” (DIP) loan from a Connecticut hedge fund called Trilogy Capital, and it wants the bankruptcy court to approve that deal and allow operations to proceed more or less as normal.

On the other side stands Lehman Bros., itself a bankrupt entity but one which is nonetheless owed some $170 million on two separate loans to Moonlight entities. Lehman has offered to provide its own DIP loan, at a much lower interest rate than Trilogy and without any of Trilogy’s onerous fees, but it wants to appoint a “chief restructuring officer” to oversee operations, and presumably at a minimum tell Poole how he can or can’t spend the money. Some Moonlight homeowners think this is a better solution, because in their view the sooner Lehman gains control, the sooner the resort can be sold and a long-term solution found.

“The permanent fix is what’s good for the community,” says Jeff Ubben, a San Francisco-based investment manager and long-time Moonlight property owner. “Lee does not have the ability to deliver the permanent fix, and he’s protracting the process and keeping the development in a frozen state.”

Ubben praises Poole for his vision in developing Moonlight, and adds:  “Lee for many years under-promised and over-delivered.” But in recent years “he got way out over his skis,” Ubben says, citing in particular the golf course as an ill-conceived and uneconomic endeavor.

Robert G. Hensley, president of one of the Moonlight homeowners associations, filed an affidavit in the state court case supporting the appointment of a receiver to oversee the property in order to “preserve homeowner value” and assure the continued delivery of services. Hensley told NewWest.Net that he and the association are “fairly neutral” on the current financing alternatives.

Ubben told NewWest.Net that he was hoping that a group of homeowners might be able to join in the Lehman DIP financing, just as homeowners were involved in the deal that got the neighboring Yellowstone Club out of bankruptcy.

One major concern of Ubben and others is that if the Trilogy financing is approved, everyone could potentially be back in the same spot a year from now when the loan money has been spent - except that Trilogy could then be in a position to take over the property for the price of its loan. Further, Moonlight’s current access deal with next-door Big Sky Resort expires after this season, which promises to further complicate the deal-making.

NewWest.Net attempted to contact Trilogy through its attorney, but a phone call and an email were not returned.

On the face of it, the proposed Lehman financing is certainly a much better deal, and bankruptcy law makes it hard for another lender to come in front of Lehman’s existing loan. But Poole and McElyea are furious over what they regard as a long pattern of bad faith on the part of Lehman. They assert that the investment bank induced them to take short-term funding in the fall of 2007 with promises that it would arrange either a sale or a long-term funding deal in short order. But when neither of those things came to pass, the short-term Lehman bridge loan became the dreaded “bridge to nowhere” and left Moonlight with no options.

The bad feelings could stand in the way of a solution in which current management continues to operate the property but with a Lehman-appointed chief restructuring officer also involved. Lehman is also anxious that any money it provides not be used by Moonlight to develop a legal case against Lehman alleging bad faith and conflict of interest in the original financing deal.

Under bankruptcy law, the court cannot at this stage force Moonlight to accept the Lehman financing. It can only approve or not approve the Trilogy financing. But there are various ways in which U.S. Bankruptcy Judge Ralph B. Kirscher can pressure the parties to find a solution. Kirscher has made it clear that he considers it crucial that the resort open and operate for the winter. But with whose money, and under whose control, remains to be seen.

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