Bankruptcy Plan Approved

Yellowstone Club: Who’s Going to Get Paid?

By Jonathan Weber , 4-06-09

For a lot of people in Big Sky and Bozeman and elsewhere in Montana, all the drama surrounding the Yellowstone Club bankruptcy matters for one very simple reason: the outcome of the proceedings will determine if and when they’re going to get paid.

Despite a lot of complex legal maneuvering, there is now a relatively clear path to resolution of the case, which will involve a sale of the club at auction in early May. At a hearing today in U.S. Bankruptcy Court in Butte, Judge Ralph B. Kirscher approved the so-called Disclosure Statement (posted here as a PDF) and the procedures governing the auction - cutting off the seemingly endless objections from lender Credit Suisse and affirming the basic outlines of what will happen next.

According to a list of creditors filed with the court and posted here (PDF), there are upwards of 300 businesses and individuals who are owed money by the club. If you’re Bozeman Ford, which is owned $9.64, you’re probably not too worried about it. But if you’re MK Weeden Construction of Lewistown (owed $815,614), or Montana Crane Services of Bozeman ($28,990), or Red Tiger Drilling of Manhattan ($31,226), how the bankruptcy claims are resolved is of more than passing interest. Big Sky is full of stories of small business folks who are being put under for want of the $5,000 or $10,000 they’re owed by the club.

Indeed, with real estate markets everywhere in the tank, and the Big Sky area suffering more than most from a bubble hangover, the payout (or lack thereof) from the Yellowstone Club stands to have a significant impact not just on individuals and their families, but on the local economy as a whole. Although the creditors list is not complete - it was compiled before the official deadline for filing claims - it shows about $7 million in trade creditors alone.

Who will ultimately own the club following the May auction remains uncertain; CrossHarbor Capital Partners, led by Sam Byrne, has set a floor price with a “stalking horse” offer of $100 million and is the odds-on favorite to own the property, but other bidders could still emerge, and that could in turn influence the final shape of the bankruptcy reorganization plan. But it’s still possible to handicap the odds of a payout on various types of claims. And this is of more than academic interest, as several companies are offering to buy people’s claims (in fact one has already bought more than a dozen) and one source reported the going rate to be 28 cents on the dollar. Herewith is our analysis of the creditor claim situation:

Employee claims. If you are an employee of the club and you got stiffed on a week of wages and benefits just before the bankruptcy filing, don’t sweat it. You’ll get your money, and probably fairly quickly (i.e. shortly after a bankruptcy plan is approved, most likely toward the end of May.) Bankruptcy law puts employee wage claims at the head of the line.

Trade claims for ongoing work. If you have a current contract with the club for goods and services that you are still providing, that contract will likely be “assumed” by whatever entity ends up owning the club, and thus you will get your past-due money.

All claims of $5,000 or less (other than employee claims). This is where it starts to get tricky. The current reorganization plan calls for all claims up to $5,000 to be paid as “convenience claims,” which means they would be paid immediately upon approval of the plan (again that’s probably in late May). However, $5,000 is a pretty high ceiling for claims of this type - in comparable situations convenience claims are often capped at $1,000 - and Credit Suisse (which has a very inconvenient claim of $310 million) says $5,000 is too high. If the number sticks, which is likely, and you’re owed, say, $6,000, you might be wise to voluntarily reduce your claim to $5,000 and take the money via this route as it would probably be quicker at the very least.

Unsecured trade claims of more than $5,000. In most bankruptcy situations, large unsecured trade creditors are very vulnerable, but this case is a little different. As part of its proposed buyout, CrossHarbor has offered to establish a special fund of $7.5 million to pay off all trade creditors: most club members feel strongly that trade creditors should get paid (nobody wants to be treated as a pariah around town) plus it will be hard to get high-quality goods and services if the last round of vendors and contractors got stiffed. But if another bidder ultimately tops CrossHarbor, it’s not clear if they will be able or willing to do the same. The Ad Hoc Committee of members will be helping to vet the offers in an auction, and how trade creditors are treated will be one factor they weigh.

In addition, CrossHarbor reserves the right to decide who gets paid out of this fund, and has already stated that anyone who transfers or sells their claim will not be eligible. And while $7.5 million should be enough, that’s not a certainty, and it’s also not clear how quickly payments would be made.

Other unsecured claims. A big chunk of the unsecured claims are not in fact for trade creditors. Former cycling great Greg LeMond and several of his fellow “Class B” shareholders, for example, have claims of about $4.4 million each for a portion of an unpaid legal settlement. Claims of this type are not likely to get paid anytime soon, and might be subject to further litigation. In principle, unsecured claims that are not trade claims and not convenience claims will be paid out of a “liquidating trust” which will collect all the stray assets (like that infamous castle in France, and the various promissory notes issued by the Blixseth’s) and try to cash them in for the benefit of creditors. But it’s not at all clear how much money the liquidating trust might eventually have at its disposal.

Secured claims. If you have a lien that was placed on a property a long time ago (i.e. before the September, 2005 Credit Suisse loan), you’re in good shape. If you have liens on specific assets that were not part of the Credit Suisse loan - vehicles, for example, or in the case American Bank of Bozeman, the main base lodge itself - you’re also in good shape. If you’re Credit Suisse, though, or rather the bondholders who bought the original $375 million loan from Credit Suisse, you’re not in such good shape.

For one thing, Credit Suisse is being sued by the Creditors Committee on the grounds that the original loan was a fraudulent transfer, and if Credit Suisse were to lose, it would not only have its $310 million claim wiped out entirely, it would have to pay back principle and interest it has already received. If it prevails in the lawsuit, its payout will depend on how much the club is sold for in the auction (and how much if anything is ultimately available from the liquidating trust). At the CrossHarbor price, the $310 million loan would become a $70 million loan - quite a haircut, though it could be worse.

Officially there are more than a dozen different types of creditors - what’s above is radically simplified - and a lot could change over the next month or two. But the bottom line is, by bankruptcy standards most trade creditors are in pretty good shape and stand a decent chance of getting most if not all of their money by summer.

Editor’s Note: This story has been updated from its original version, correcting the number on total trade claims reflected in the list. In addition, as a commenter pointed out below, the list of creditors in the court filing does not appear to show claims against the Yellowstone Mountain Club LLC. We are awaiting clarification on this point and will update the story when we have more information. Finally, attorney Andy Patten, who represents the club, said in an email that MK Weeden Construction, cited above, had a construction lien and has been paid.

Second update: The PDF containing the creditor list for Yellowstone Mountain Club is available here. (The type if very small so you will have to zoom in once you access it!)

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