Yellowstone Club Saga Continues

In a mixed decision that answers some questions but leaves many others open, U.S. Bankruptcy Court Judge Ralph B. Kirscher on Thursday threw out a key portion of Tim Blixseth's defense in the Yellowstone Club bankruptcy court lawsuit, but at the same time re-opened the trial and set an August date for the proceedings to continue.

The lawsuit by the club and the committee representing unsecured accused Blixseth and investment bank Credit Suisse of engaging in a "fraudulent transfer" and breach of fiduciary duty in connection with a $375 million loan to the club in 2005. Kirscher last month issued a partial ruling against Credit Suisse, putting the claims of its lender group at the back of the line due to what he characterized as the "predatory" and irresponsible nature of the loan. That ruling prompted a settlement of the main bankruptcy case, with CrossHarbor Capital Partners buying the club for $115 million in a complex deal that assured that all unsecured trade creditors would get paid.

The settlement called for the court to vacate its ruling against Credit Suisse. But the claims again Tim Blixseth, who could ultimately be forced to repay more than $200 million, remain unresolved.
[more]

Emerging from Bankruptcy

Brushing aside a spate of last-minute objections, U.S. Bankruptcy Court Judge Ralph B. Kirscher on Monday approved the reorganization plan for the bankrupt Yellowstone Club, clearing the way for the property to be sold to Boston-based CrossHarbor Capital Partners.

Confirmation of the reorganization plan and the accompanying sale of the club were all but assured after a negotiated settlement was reached two weeks ago with investment bank Credit Suisse, which brokered a $375 million loan to the club in 2005 and now represents the entities that hold the remaining $310 million of debt. But former club owner Tim Blixseth and manager Bob Sumpter continued to object to the plan, and a late objection to the settlement agreement emerged from Highland Capital, which was the manager of the loan funds that included the Yellowstone Club loans.

Highland's objections had to to with a matter that is often important in these kinds of agreements - the "releases" in which everyone agrees not to sue one another. Highland was apparently seeking to retain the right to take legal action against Credit Suisse, whose behavior in making the loan was harshly criticized by Judge Kirscher in a ruling which put the Credit Suisse lender groups claims at the back of the line. But Kirscher denied all the objections after a relatively brief hearing Monday.

CrossHarbor, a real estate investment firm led by Sam Byrne, will now acquire the club for $115 million in cash and debt, and commit to investing up to $75 million going forward. All unsecured trade creditors should be paid in full under the plan. The Credit Suisse lender group will get a new $80 million note, and may be able to recover additional funds from the sale of the Chateau de Farcheville in France and from legal claims against Tim Blixseth. [more]

Idaho Property still on the ropes

A handful of possible buyers have emerged for the shuttered Tamarack Resort near McCall, Idaho, and if all goes well a new owner who would re-open the resort could be in place within the next 3-4 months.

The situation remains tenuous, and a court hearing Thursday focused on if and how the resort could come up with additional temporary funding to maintain the property while a deal is negotiated. The latest interim funding provided by the Credit Suisse-led lender group - which loaned Tamarack $250 million in 2006 and is now owed well over $300 million with penalties and interest - will expire at the end of the month. Final resolution of that issue was postponed until tomorrow.

But for the first time in the many months (the resort filed for bankruptcy in February of 2008 and then shut down in March of this year), there seemed to be some optimism about the big picture, following a mediation session last week in Los Angeles that all sides portrayed as successful. Although there is a strict confidentiality order surrounding the mediation, sources familiar with the situation said the goal was to come up with a deal structure that would be acceptable to Credit Suisse and the owners of the resort, which is now in receivership. [more]

News Analysis

For those of you who just can't get enough of the Yellowstone Club story, I've written a couple of pieces for other publications that take a slightly more cosmic view of the story. My piece for TheAtlantic.com gives a concise history of the Yellowstone Club bankruptcy, and offers some props to Judge Ralph B. Kirscher for steering the case to a fair resolution. For The Big Money, a new business news and analysis site from the Slate Group, I wrote about the wreckage of Credit Suisse's Western resort empire, and what the lenders are likely to recover. When the Yellowstone Club loan was your best deal, you know things aren't looking too good.

Poor Little Rich Club Lives On

Marking the beginning of the end of a great Western soap opera, CrossHarbor Capital Partners today won a bitter battle for ownership of the bankrupt Yellowstone Club after reaching a settlement agreement with lender Credit Suisse.

The deal, which came in the wake of a disputed auction of the club late last week and was signed only minutes before today's court hearing, calls for CrossHarbor to pay $115 million in cash and debt for the club, in addition to providing a $15 million fund for trade creditors and up to $75 million in working capital going forward. The Credit Suisse lender group, which is owed $310 million, will get a new note for $80 million and could collect additional funds from a so-called "liquidating trust."

All unsecured creditors, with the exception of some members with special claims, should get paid in full under the deal.

[more]

Judge Bangs Heads Together

A chaotic two-day auction of the bankrupt Yellowstone Club ended without formal resolution late Friday, but sources said a tentative settlement that would give control of the club to CrossHarbor Capital Partners has been reached.

Although parties including club founder Tim Blixseth and a group of club members had indicated their intention to take part in the auction, in the end only CrossHarbor and investment bank Credit Suisse made bids. Credit Suisse suffered a big setback earlier in the week when U.S. Bankruptcy Judge Ralph B. Kirscher ruled that the $375 million loan the bank brokered for the club in 2005 was "predatory" and erased the lenders' priority claims, but the bank was able to muster a competitive bid that included $43 million in cash and a so-called "credit bid" component.

Much of the fighting over the last two days involved which of the two bids was actually superior. The Credit Suisse bid had a higher dollar amount than CrossHarbor's long-standing "stalking horse" offer of $30 million in cash and a $70 million note, but the club and the committees representing creditors and members argued that Credit Suisse's plan did not provide the club with enough working capital to ride out the real estate slump, and included too much debt at too high an interest rate. CrossHarbor had pledged $75 million in cash going forward.
[more]

Update, 10:30 p.m. MDT: The bids from Credit Suisse and CrossHarbor have been evaluated by the club and the committees that have been empowered to weigh in (the unsecured creditors committee, the ad-hoc members committee and the B shareholders). Sources say that even though the Credit Suisse bid (which includes a so-called credit bid component) has a higher dollar figure, it calls for a radical increase in member dues and includes limited working capital, and thus the CrossHarbor bid has been judged to be superior.

A hearing on this before Judge Kirscher is likely to take place Friday morning. Settlement discussions have been ongoing over the past two days but no agreement has been reached, according to multiple sources with direct knowledge of the situation.

If the CrossHarbor bid is chosen and no settlement is reached, Credit Suisse has indicated that it will continue to fight at the plan confirmation hearing scheduled for Monday. The initial court filings for that hearing show that Credit Suisse plans to argue yet again that the CrossHarbor engaged in an unsavory conspiracy with Edra Blixseth to get the club on the cheap - an argument the court has already repeatedly rejected.

The long-awaited auction for the Yellowstone Club is bogged down in a pitched battle between Credit Suisse and CrossHarbor Capital Partners - a battle that involves not just the price to be paid and the structure of the deal but, perhaps more importantly, what the plan is for the club going forward.

The parties were back in court twice on Thursday arguing over whether the proposed Credit Suisse bid was a "qualified bid." and Judge Kirscher ultimately determined that it was. A strict instruction on confidentiality by the Judge, including a threat of sanctions, means that relatively little information is available. Credit Suisse was authorized to "credit bid," meaning it could use what it's owed as part of the purchase price, but it must provide $43 million in cash plus a $14 million note for the benefit of unsecured creditors. One of the major points of contention is said to be how much money the Credit Suisse group will put up for club operations going forward.

Bankers on Trial

Declaring that Credit Suisse actions in making a $375 million loan to the Yellowstone Club were "so far overreaching and self-serving that they shocked the conscience of this court," U.S. Bankruptcy Court Judge Ralph B. Kirscher on Tuesday ruled that Credit Suisse's secured claim to $232 million of the remaining $310 million loan balance would be "subordinated" to the claims of tradesmen, vendors and other unsecured creditors in the case.

The ruling, which follows a week-long trial in bankruptcy court, vastly complicates Credit Suisse's effort to buy the club in an auction slated for tomorrow. It could also expose the bank to numerous claims from both the institutional investors to whom it sold the Yellowstone Club debt, and from those damaged by similar Credit Suisse loans made to Tamarack Resort, Promontory, Lake Las Vegas and a number of other resorts around the world.

At the same time, Kirscher's decision makes it likely that most other creditors will get a good chunk of their money. "The main thing is that the moms and pops and small businesses will get paid first, and that's how it should be," said J. Thomas Beckett, the Salt Lake City-based attorney for the Unsecured Creditors Committee and leader of the litigation against Credit Suisse. "This is substantial justice."
[more]

Blixseth, Credit Suisse Await Verdict

If all goes according to plan, the Yellowstone Club bankruptcy saga will be all but resolved a week from Monday, with a sale of the club approved, many if not all of the creditors set to receive a good chunk of their money, and the process of rebuilding the brand and implementing a long-term plan for the property ready to begin.

But of course a lot has yet to happen between now and then. Here's a round-up of the latest developments.

[more]

Where's Tim?

The court-supervised auction of the Yellowstone Club has attracted only two bids as of Wednesday's deadline for the submission of initial offers, according to sources close the situation, with no bid materializing from former owner Tim Blixseth or the group of members that had been expected to make an offer.

While people involved in the process said there were rumblings about some late bids emerging, as of Thursday morning the only offers were the "stalking horse" bid from CrossHarbor Capital Partners and a so-called "credit bid" from Credit Suisse and several of the primary owners of the $310 million in debt remaining on the $375 million Credit Suisse-brokered loan to the club. [more]