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.
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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."
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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.

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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]

Yellowstone Club Trial

As Tim Blixseth fights fraud allegations in the Yellowstone Club bankruptcy case, his preferred defense is one that will likely be familiar to any veteran of a bitter and contested divorce: it's all his ex-wife's fault.

Judge Ralph B. Kirscher has for the most part excluded evidence relating to the couple's 2008 divorce from the trial now taking place in bankruptcy court over a $375 million Credit Suisse loan to the club.

But with Edra Blixseth on the witness stand Monday, Tim Blixseth's attorney, Michael Flynn, finally managed to make at least part of his case against Edra. Combined with recent court filings made by Edra Blixseth in her personal bankruptcy case, the evidence Monday painted a picture of a woman who, at a minimum, made some extraordinarily poor financial decisions. [more]

Poor little rich club

For at least a minute or two on Sept. 30, 2005, the Yellowstone Club was flush with more than $350 million in its coffers. A $375 million loan brokered by Credit Suisse had just closed, various debts had been paid off, and with the luxury real estate market in full flower, the club appeared to be not only solvent, but positively brimming with cash.

But the loan money had barely hit the bank account before $209 million of it was transferred to BGI, the holding company of Tim and Edra Blixseth that owned more than 80% of the equity in the club and called all the shots. And though hardly anyone knew it at the time - the loan transaction had been kept secret not only from club members but even from minority shareholders and other investors in the enterprise - that cash transfer was allegedly the beginning of long "downward spiral" that culminated in the club's bankruptcy filing last fall. [more]

Federal Bankruptcy Judge Ralph B. Kirscher shut down the use of Twitter in a Missoula courtroom today during a trial that has pit the members of the ritzy Yellowstone Club against former owner Tim Blixseth and lender Credit Suisse.

NewWest.Net's Jonathan Weber had been live blogging the trial via the publication's Twitter stream (www.twitter.com/NewWest) since yesterday morning, keeping readers abreast of the play-by-play in the courtroom, including during Blixseth's testimony. (Read Jonathan's story here.)

About an hour after proceedings began, the Judge requested a side conversation with lawyers about the "communication of proceedings outside courtroom."

Jonathan wrote on Twitter: "Issue: later witnesses are not allowed to hear earlier witnesses. Judge calls recess to allow lawyers to tell witnesses: stay off Twitter!"

A short while later, Jonathan wrote: "The last #YCtrial tweet: Judge has ruled no Twittering of the trial. I am disappointed but that is the ruling."

Meanwhile, upstairs in the courthouse, a University of Montana Journalism class covering the W.R. Grace trial has been Twittering the case since it began in several months ago, as has Tristan Scott, the lead courts reporter for the Missoulian newspaper. [more]

What's the Fee? Flip a Coin

Update, 4/30, 4:45 p.m.: Day two of the trail started with questioning of Michael Doyle, Tim Blixseth's long-time attorney, on the issue of when and how the decision was made to make the $209 million payout to Tim Blixseth from the Credit Suisse loan a "loan" rather than a "distribution." But for the better part of the day Missoula attorney and creditors committee chairman Steve Brown was on the stand, with Blixseth attorney Michael Flynn trying to prove that Brown is hopelessly conflicted because he represented - and "technically" still represents - Blixseth in various other legal matters, including the LeMond litigation.

Flynn is seeking to have the case against Blixseth dismissed because of this issue. Judge Ralph B. Kirscher has said he will rule on that after the week-long trial is over. While Brown does appear to have a conflict, it's not clear what it has to do with the core issues in the case.

Yellowstone Club founder Tim Blixseth took the witness stand in a Missoula courtroom Tuesday, asserting that he did nothing wrong in connection with a $375 million loan from investment bank Credit Suisse.

"I started the club with a pick-up truck and a hammer," Blixseth said in explaining why business procedures were informal and thus certain key transactions were not documented until long after the fact. [more]

Update: The judge has shut down the Twitter stream from court. See story here.

NewWest.Net's Jonathan Weber is covering the trial against the Yellowstone Club this week in Missoula and if you'd like up-to-the-minute coverage and color from the courtroom, you can follow the NewWest.Net Twitter feed.

Click here to follow the @NewWest account.

Or, you can check back here for updates. The feed is after the jump.

Click here to catch up on the Yellowstone Club bankruptcy and the trial against the club's lender, Credit Suisse, which is the main meat of this week's hearings.
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