Yellowstone Club on the Ropes
Yellowstone Club Scrambles For Bailout in Bankruptcy Court
With lender Credit Suisse unable to raise cash, Boston-based CrossHarbor Capital Partners may be poised to take control of the ultra-luxury club. But no ruling was issued Tuesday.By Robert Struckman, 11-25-08
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A day-long battle over the future of the bankrupt Yellowstone Club played out in U.S. Bankruptcy Court in Butte Tuesday, with lender Credit Suisse desperately trying to maintain control of the property and block a financing deal from Boston-based CrossHarbor Capital. While Judge Ralph B. Kirscher did not issue an immediate ruling, he appeared highly skeptical of Credit Suisse’s ability to put forward a viable proposal after an interim funding deal fell apart just before the court hearing.
Credit Suisse, one of the world’s largest financial institutions, has been unable to come up with the money for a seven-figure loan package that would enable it to keep control of the club and sell the assets. The bank’s plan apparently involved mothballing the club while it sought buyers—a strategy that many involved in the case believe would be a disaster.
CrossHarbor, for its part, has proposed putting up $20 million to keep the club operating through the winter season while a long-term re-organization plan is developed. Club members, some of whom were in court Tuesday and who are understandably eager to see the club remain open, agreed to pitch in another $5 million as part of the CrossHarbor plan.
The Yellowstone Club, a private ski and golf resort for the mega-rich near Big Sky, Mont., filed for Chapter 11 bankruptcy on Nov. 10, and a few days later the court approved an interim financing deal from Credit Suisse, which is the club’s primary lender and thus the biggest creditor in the bankruptcy proceeding. That loan was for just $4.4 million, enough to keep the club running for a few weeks while a broader deal was hammered out. The club has debts of at least $365 million, with the bulk of that owed to a consortium of lenders led by Credit Suisse.
If the CrossHarbor deal goes forward, Credit Suisse will no longer be first in line to be paid off if and when the club is able to re-organize, and thus it opposes the proposal. As the primary creditor, its stance carries a lot of legal weight in the bankruptcy proceedings.
But a plan that involved closing the club, even temporarily, would likely destroy much of its value and thus be detrimental to most creditors—not to mention club members, employees and the communities of Bozeman and Big Sky.
CrossHarbor, led by investor Sam Byrne, owns a substantial chunk of property at the club and had tried to buy it from founder Tim Blixseth earlier this year. Tim Blixseth’s ex-wife Edra is now the nominal owner of the club, having gained control as part of their divorce settlement. But the equity in the club is almost certainly worthless and effective ownership lies with Credit Suisse. Edra Blixseth, who had testified in favor of the Credit Suisse interim financing that was approved two weeks ago, was not in court Tuesday.
It was a day of high drama as the judge heard arguments and then called a recess while the parties tried to negotiate privately. By noon, the terms of the CrossHarbor loan hadn’t been worked out—or agreed to by representatives of Credit Suisse, whose attorney was loathe to allow any other lender to get ahead of its massive debt. Credit Suisse offered to continue financing the club for one more week, with the hope that the extra time might allow the Swiss-based banking giant to pull together enough cash to shut down and sell the club.
“I can assure Your Honor that the existing lender will object to any priming motion,” said the lawyer for Credit Suisse. A priming motion would allow a lien placed by a new lender to get in front of the interests of other creditors, namely Credit Suisse. But almost any lender would be unwilling to lend millions of dollars secured by a junior lien. Credit Suisse indicated the one-week deal would be satisfactory, even though it offered nothing close to a guarantee that the club would remain open.
But Judge Ralph B. Kirscher indicated he might be willing to overrule Credit Suisse’s objections.
“Are we prolonging the inevitable and incurring more debt? There are many employees, prospective employees, I’m sure, who are wondering if they should relocate to Big Sky for work or go somewhere else to find work,” Kirscher said. “I don’t want to drag this out too long, because that won’t help anybody in the end.”
A ruling is likely to come as soon as tomorrow morning.
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Comments
Can anyone explain?
1) Allow CS to extend another small loan in an amount adequate to wind down and liquidate the Club's assets (and keep CS on top), or
2) Allow CH to extend a larger loan in an amount adequate to operate the club through the ski season. This forestalls the "day of reckoning" until Spring, when in theory the club will have had more time to work out a major refinancing, sale, etc. which won't shut it down. In this case, the smaller CH loan goes over the larger CS loan, because without that CH would never make the loan and this option would not exist.
So in picking #2 the Judge made an executive decision because he thought CH's plan was better. If CS had suggested something more palatable than liquidation, they may easily have prevailed. I think most locals, YC employees and YC members would agree with the Judge. Option #2 doesn't guarantee that the club will still be operating and employing people after next Spring, but it does at least offer another chance at a restructuring that won't shutter the place and lay off 100%.
If things are done properly and the club is restructured or sold without shutting down, the CS position could easily remain more valuable even with the smaller CH position over it. In my opinion, demanding priority of a $300M amount over a $25M amount when only offering liquidation as an option was pennywise and pound foolish for CS to do.
Who knows what Spring will bring, but the Judge made the proper decision last week.
To elaborate a little, bankruptcy judges have pretty broad power to make rulings that are in the best interest of creditors. While the bigger creditors perforce get more consideration, they do not dictate the outcome. I also agree with Renon that CS seems to have misplayed its hand, though I am sure they will be back.
Merry Christmas to all and to all a good night.
Given your readership knows very little about Big Sky's new Hero being Sam Byrne, maybe for the readers understanding you could do a feature article about Crossharbor and Sam Byrne? An article on who this firm is, where they get their funds, what have been some of their big investments over the last 9 years, the reason this group is one of the only successful real estate funds in the USA when others are failing? Its time to get to know the new owner, the new financial muscle who took on the goliath of CS and won the battle. Very little is known about this powerful group and its leader. I believe it would be of great interest to read about such a company and such a HERO on how they became so successful. Their website clearly shows nothing to the outside world. Thank you to consider running such a profile story to all your readers and do so in a very positive manner as he is truly a Big Sky Hero to all of us.
Sam is not the Savior, but he is a very concerned member. Thank god he is able to see the big picture.
Fan
Any thoughts on a 'Feature Article' on Crossharbor / Sam Byrne? I think its a great story that this incredible investment firm is the only group not impacted by the Economic Crisis / Banking Crisis like the rest of the world. Truly an amazing accomplishment. The part about loaning Edra Blixseth $35,000,000 as reported by Bloomberg in their article and also being stated by Bloomberg as a record of fact that that loan is also in default since October 2008 is a great paragraph on what it takes to be a shrewd and successful investor like Crossharbor. If this is how deals get done, I believe we deserve to know how its all possible and more importantly know more about the new leader of the Mountain. This is not meant to be sarcastic, rather many readers want to know how he is so successful when others are failing? We may all want to place our retirement savings with him if the story is validated? Please do let us know NEW WEST Editor if you will do a feature article on the 'Man who took on Credit Suisse, Tim Blixseth and Edra Blixseth to win this club' I await your response.
By all your details it seems like you would have to be a club employ or former employee of tim's to know all the details of real estate transactions that by law in montana are confidential, as are member records. you seem pretty certain that Mr. Byrne hasn't paid his bills. Can you prove it? or is this just more rants? what is your affiliation with the yellowstone club, if you profess to have so much info for the public.
let's add a few points for consideration
1. Sam bryne does not own the yellowstone club, he just lent the Dip financing to keep the place operating over the winter. last time i checked edra blixseth still owned the club.
2. tim blixseth built and sold 15 of the sunrise units before the deal to sell the remainder to CH. so much for your accuracy in accounting, also the way i figure it all the buyers of sunrise also help to offset the operating costs of the club. why do you expect him to subsidize other members for their use of the club, by paying annual dues for every unsold condo.
3. "he is making the membership pay more fees", hard to do if he isn't the owner. i believe that this is actually supported by the member committee, but perhaps not all members. They like many people here want to see the club open this winter. "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." New West 11-26-08
4. where did you come up with 20%, out of your hat or is that in a public document?
5. in 2008 sunrise had over 30 members who paid their memberships and dues, yet you miss this point, creative accounting. funny you seem to portray like you know all the details and miss the simple fact that units have sold over the last few years..
the real facts, regardless of how the club got here the Bankruptcy will bring all the ghosts out of the closet. who knows what and how much was promised to each member by tim in the early years. this restructuring will force a long term plan that works or the club will sell. no matter who buys the club they would be unlikely to assume all the risk or liability of the previous owners. like it or not the YC, moonlight basin, and spanish peaks have been a driving force in the local economy of south west montana, and if one fails the impact to the local business and vendors would be great. Mothballing the club and liquidating its asset destroys all the value, including the value of the credit suisse investors(think YColdschool got it right, as did the judge).