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If you want a stark example of the kind of lending practices that created the global credit crisis, you can hardly do better than banking giant Credit Suisse's adventures in luxury mountain resort financing. At Tamarack in Idaho, at Promontory in Utah, and at the Yellowstone Club in Montana (to name just the few that I'm most familiar with) the bank doled out hundreds of millions in loans, which were than syndicated out to investors (just like those famous sub-prime mortgages). If the Yellowstone Club situation is typical, those loans were made with minimal due-diligence or oversight, and no plan for what might happen if the real estate market hit the skids. The Yellowstone Club owes Credit Suisse (or rather its unfortunate clients) $307 million, and I'd say there's a better than even chance that only a fraction of that will ever get paid back. If you'd been wondering what the "toxic assets" that are of such concern to the Treasury Department and the Federal Reserve actually consist of -- and why they threaten the solvency of the entire banking system -- there's one answer. The level of recklessness in Credit Suisse's resort lending - and sources say it did more than dozen similar resort loan deals in the U.S. and overseas - is only now becoming clear.

Portrait of a “Toxic Asset”

If you want a stark example of the kind of lending practices that created the global credit crisis, you can hardly do better than banking giant Credit Suisse’s adventures in luxury mountain resort financing. At Tamarack in Idaho, at Promontory in Utah, and at the Yellowstone Club in Montana (to name just the few that I’m most familiar with) the bank doled out hundreds of millions in loans, which were than syndicated out to investors (just like those famous sub-prime mortgages). If the Yellowstone Club situation is typical, those loans were made with minimal due-diligence or oversight, and no plan for what might happen if the real estate market hit the skids.

The Yellowstone Club owes Credit Suisse (or rather its unfortunate clients) $307 million, and I’d say there’s a better than even chance that only a fraction of that will ever get paid back. If you’d been wondering what the “toxic assets” that are of such concern to the Treasury Department and the Federal Reserve actually consist of — and why they threaten the solvency of the entire banking system — there’s one answer.

The level of recklessness in Credit Suisse’s resort lending – and sources say it did more than dozen similar resort loan deals in the U.S. and overseas – is only now becoming clear. Even if you take the most charitable view, much of Credit Suisse’s Yellowstone Club loan financed exceptionally wasteful spending by the club and its owners, as well as a dubious scheme to develop a super-luxury vacation time-share operation called the Yellowstone World Club. Any busboy in Big Sky could have told Credit Suisse that its money was being squandered.

At Tamarack in Idaho, the situation is a little less scandalous, but similarly dire. The resort is now operating under a receivership, and is probably just a bad snow season away from total insolvency. One way or another it will probably survive, but you definitely wouldn’t want to be holding a $270 million note. Promontory, in Utah, is also staying open while in Chapter 11 proceedings, but as with its brethren, the financial model (and repayment of $275 million) depends on a real estate recovery that looks distant indeed.

It’s now conventional wisdom that the financial industry’s risk-assessment methods were fatally flawed because they understated the probability of a dramatic shock to the system — like, for example, a 30 percent fall in real estate prices. And Credit Suisse was hardly alone in its follies: Lehman Bros., for example, lavished $170 million on the Yellowstone Club’s Big Sky neighbor, Moonlight Basin. (We know how the Lehman part of that ended, and the Moonlight Basin part is still to be determined). Financial institutions of all stripes, looking to meet investor demand for loan products in the easy-money days of the 2002-2006, thought they could spread the risk by slicing the loans up into investment instruments (often collateralized debt obligations, or CDOs) that in some cases could then themselves be insured against default (via credit default swaps). Nobody thought too much about what might happen if underlying asset values collapsed across the board.

Yet all it took was a common-sense look at a resort market like Big Sky, where prices tripled from 2003 to 2007, to suspect that the buying frenzy wasn’t going to last. Credit Suisse only had to analyze its own portfolio to recognize that there was an awful lot of supply of multi-million-dollar mountain homes coming online.

And even if you accept the “everyone was doing it” defense, it still seems amazing that an institution like Credit Suisse, with access to the best legal and financial minds in the world, apparently had nothing remotely resembling a Plan B for these projects. For a while I wondered what the bank’s strategy might be as the loans defaulted: Did Credit Suisse think there was long-term upside, in which case it would be looking to own and operate the properties for a while? Or was it just aiming to get whatever it could as quickly as possible, even if that meant big losses?

From watching the proceedings in the Yellowstone Club bankruptcy, I think it’s now safe to say there was no strategy at all. First, Credit Suisse stood by while the club slipped into Chapter 11 in the first place. Then, it came forward with a $4.4 million debtor-in-possession financing that would last about three weeks, with no clear indication of what it planned to do then. When “then” arrived, about 10 days ago, Credit Suisse first said it would offer a few more weeks of funding, then said it couldn’t even raise the money for that, then proposed floating things for a week so it could shut the club and sell the assets.

The bankruptcy judge, not surprisingly, decided that was a pretty dumb plan, and approved a $25 million interim financing from CrossHarbor Capital Partners. (A liquidation plan involving the shut-down of the club would almost certainly destroy much of its remaining value). In fact, the restructuring specialist that Credit Suisse installed as part of the three-week loan deal actually testified against the bank’s proposed new interim financing plan. That has to be pretty rare.

The Credit Suisse lawyer, from Skadden Arps, has certainly been dancing energetically in the courtroom; top-dollar lawyers are evidently something the bank can still afford. But its apparent lack of attention to how it might rescue a series of loans that total in the billions is baffling. A cynic would say that since Credit Suisse doesn’t actually hold most of the paper, it’s just in it for the fees anyway, and therefore the more running in circles, the better. I’m not that cynical: I think it’s just incompetence.

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34 comments

  1. Excerps from Court filed documents in Montana:

    Principal Amount: $19,750,000

    Commitment Fee: $592,500.00, representing 3% of the DIP Loan paid to CIP Lending Yellowstone – CrossHarbor on funding.

    Use of Proceeds: The proceeds of the DIP Loan will be used solely to pay the post-petition operating expenses of the Debtors and other costs and expenses of administration of the Debtors’ chapter 11 cases as required pursuant to, and used solely in accordance with the Approved Budget, including to pay, subject to such Bankruptcy Court approval as may be required, the reasonable invoiced fees and expenses of Duane Morris LLP, Goulston & Storrs, P.C. and Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P. as counsel to the Agent and DIP Lenders, bankruptcy counsel for the Debtors and any additional counsel (including, without limitation, funding a retainer in an amount to be specified by the Agent, and which will be included in the Approved Budget), and the fees and expenses of FTI Consulting, Inc. as provided in the Approved Budget. For the avoidance of doubt, no portion of the proceeds of the DIP Loan will be used to oppose any action, including a motion seeking relief from stay, by the holders of the DIP Loan or the Agent. Drawings under the DIP Loan shall be made in minimum increments of $3 million, on not less than 3 business days’ prior written notice (with the exception of the initial advance, which shall be on 1 business day’s prior written notice), and shall be in conformity with the Approved Budget (with the permitted deviations contemplated hereby), shall be in amounts not to exceed the Debtors’ anticipated cash requirements for the upcoming one week period. Proceeds of the DIP Loan shall also be used to repay the Existing DIP Loan, subject to such orders of the Bankruptcy Court as may be required.

    Interest Rate Charged: Each advance under the DIP Loan will bear interest at a rate equal to 15.00%. Interest shall be payable monthly, in cash, in arrears, calculated on an actual/360 day basis.

    Certain Conditions Apply:

    *****On or before December 26, 2008, Debtors shall collect full first-half dues from at least eighty percent (80%) of the Yellowstone Club members in accordance with the Approved Budget from those members required to pay dues. Membership dues shall be used and applied to pay expenses in accordance with the Approved Budget.

    *****On or before February 13, 2009, Debtors shall file a proposed Chapter 11 plan of reorganization and disclosure statement thereto all in form and substance acceptable to the Agent (the “Plan Documents”). In the event that Debtors fail to file the Plan Documents on or before February 13, 2009, along with a motion seeking approval of the disclosure statement and solicitation procedures, the Interim Order and Final Order (and any other orders of the Bankruptcy Court governing the Debtors’ exclusive periods under 11 U.S.C. §1121 to file and solicit acceptances of a plan of reorganization (the “Exclusive Periods”)) shall provide that the Debtors’ Exclusive Periods shall terminate on February 13, 2009. Debtors shall be in default under the DIP Loan unless Debtors have filed the Plan Documents in solicitation motion on or before February 13, 2009 or, alternatively, the Bankruptcy Court has previously entered an order that terminates the Debtors’ Exclusive Period as of February 13, 2009.

    *****On or before February 28, 2009, Debtors shall collect full second-half dues from at least eighty percent (80%) of the Yellowstone Club members in accordance with the Approved Budget from those members required to pay dues. Membership dues shall be used and applied to pay expenses in accordance with the Approved Budget.

    *****On or before March 31, 2009, the Bankruptcy Court shall have confirmed the reorganization plan contemplated by the Plan Documents and that is acceptable to the Agent.

    *****If the reorganization plan contemplated by the Plan Documents is acceptable to the Agent and is not confirmed by the Bankruptcy Court on or before March 31, 2009, Debtors shall be required to commence a sale, pursuant to Section 363 of the Bankruptcy Code, of substantially all of the Debtors’ assets, which sale shall be consummated on or before April 30, 2009. Any sale of any assets of the Debtors at any time during the Cases shall be conducted only on terms and with procedures that are agreeable to the Agent, and the commencement by motion or otherwise of any such sale on terms and with procedures that are not approved in advance by the Agent shall be an immediate Event of Default.

    So, if nothing happens, and it 90% chance nothing will, then CH is doing the same plan as CS are they not? Above comes direct from the courts correct? So why does NEW WEST believe CH can pull this off when a large Bank worth 10,000 x as much as CH says it cant? CH goes to the front of the line. Why is this important? IS CH trying to protect its verticle development? CH loans another 19.8m, it loaned Edra Blixseth 35m in August and it too is in default, it has reports from 100m to 150m in sunrise Ridge and 3 houses. CH charges 15% and makes 3% up front but if those above actions do not happen, then its clear CH says it must go to a liquidation. So, question for NEW WEST to report on; what is the CH plan when CS cant come up with one? Are they going to sell real estate? Are they going to ask members to pay more in fees? Is real estate selling at the club? What are the sales in the last 9 months not including the Overlook Lot Sales Tim Blixseth and Wyane Primm did before giving the club to EDRA? Is 19.8m enough or just enought to make the club bleed even further so Sam Byrne can liquidate and buy it cheap?

    So you have facts from above, I hope you can now report a real staory and focus your attention on CH plan and how they plan to repay everyone owed money, including CS. The club is open for now but who has been paid?

  2. Natacha,

    You appear to have a lot of information. You have done your homework at least, and have a lot to say. If this website truly is bought and paid for by the Blixseths and Byrnes, you can’t honestly expect that the lowly, back country reporters will actually turn on the hand that feeds them. In the absence of the actual fair reporting that you seek, maybe you can enlighten us with your version of the bailout that should be.

    Lets just cut to the chase.

    1. what should the judge do when the parties are deposed this week?
    2. what is the end result?

    I want names Natacha. If the judge turns the club over to Credit Suisse, what is the next step? They liquidate all or part of the club to get paid back? Who owns the club at that point? The bank is simply Admin for the bonds I assume. How much of those bonds are owned by Sam Byrne are his Cross Harbor company already? If there was a buyer, why wouldnt Edra Blixseth simply have sold to that group? What kind of business would buy into this mess anyway? I would think someone who could afford to sit on it for a LONG time.

  3. Natacha, I am asking you for the 5th time to abide by the terms of service and take your bizarre personal vendetta against Sam Byrne elsewhere. Obviously you don’t know anything about me or New West or how journalism works. If you can’t control yourself we will ban you from this forum. Thanks.

  4. Weber’s brought up excellent points here about the inadequacy of the due diligence, use of funds oversight, and lack of a real workout plan. Most resorts go through this repeatedly since the infrastructure and amenities absorb so much cash up front and to operate while the residential lots always sell too slowly to close the financing gap. So the 2nd or 3rd bankruptcy’s buyers get completed infrastructure, a fairly mature development, and pay a dime on a dollar…if they time it right to be just ahead of an economic bounceback where the lots and existing homes start selling again. Golf courses with surrounding home lots are the classic example going back at least 50 years so Credit Suisse not understanding these obvious economics is pretty spooky, a copy of Hal Rothman’s “Devil’s Bargains, Tourism in the New American West” with a detailed history of ski resort bankruptcies published about 10 years ago would have warned anyone involved. Even basic thinking about business cycles would have avoided trillions in losses by finance’s many “masters of the universe.”

  5. Just checking in from McCall, Idaho scene of another Credit Suisse First lending adventure. Having followed this board for a while, I feel pretty good that our local soap opera tends to involve mostly just reasonable rich investors and not the ultra wealthy. While Tamarack has had its share of controversy, once it was opened most locals saw the value in having another economic engine in the valley. It seems to me that YC provides jobs, but little else to the community. Not much different than a mine or mill, since it can’t be accessed by anyone but its members.

    CSF has probably figured out that with all the other messes they have percolating out there YC and its ultra exclusive concept is the least worth working out. 1,000 employees for 300 members? How many lifts for how many actual skiers? The only source of income for the company is selling more extremely expensive real estate to the ridiculously wealthy or collecting dues? Most ski areas barely make it every year on their operating income. While I feel for the locals since I’ve seen the impact on unemployment when Tamarack lays off, the club concept is unsustainable unless the members step up, pony up and trim lots of fat and operate it themselves. They should organize and try to buy the debt themselves at a deep discount, say 30% on the dollar. If it shuts down they are the only ones at risk for their capital and they have the most to gain by keeping it alive. The loss of jobs will be horrible, but the judge has gone into a new frontier by declaring that as a major consideration. It s either a viable business or not. Meanwhile whatever Byrnes motives, CH has potentially set a new lien rights precedent by getting a judge to put him in 1st lien position in front of CSF. That opens up a huge can of worms. Good luck, it takes some

  6. been there done that

    Again, keep your eye on Promontory (“P”), because the parallels are quite strong. Pivotal, the P developer, just filed their plan of reorganization (Natacha, the reorg plan normally gets filed months after the initial Ch. 11 filing; in P’s case, it’s taken 10 months). Pivotal’s reorg “plan” (I use that term loosely) is to sell the club to the highest bidder. I think CS has accepted the reality that a sale is the only way to reach closure quickly, and [my bet] is that P can be had for around $50mm. Remember, P’s lot sales were strong enough in 2005 to get $350mm of debt sold. Given that Pivotal provided $25mm of DIP financing in 2008 to keep P functioning, CS’s clients only get $25mm back on their investment. Pivotal has been very Machiavellian (as a homeowner, I have other, more obscene adjectives to describe them, but I’m trying to honor Mr. Weber’s requests) throughout this process, willingly sacrificing the homeowners by taking on debt they knew was dangerous, bailing out on the homeowners and employees/tradesmen when they weren’t selling lots and unable to make the interest payments on the debt, providing DIP financing so they could prime (become senior to) CS’s investors, and now they have a chance to buy it on the cheap. Where did the $350mm go? In the pockets of Pivotal and their long term investors (the pension plans that fund their developments), which is their real constituency.

    It seems to me that, with a few twists and turns, YC’s original owners played the part of Pivotal in cashing out at the expense of the homeowners/locals, and now CH has stepped into their role. Providing DIP financing and having the owner beholden to you via the debt the owner owes CH puts CH in the driver’s seat; my bet is that you’ll eventually see a plan of reorganization that allows CH to buy the club on the cheap. In P’s case, Pivotal was smart enough to file a plan that called for the homeowners membership deposits to remain intact, so if the current plan is approved and a buyer steps in (probably Pivotal), the homeowners won’t lose those fairly hefty deposits. Most P homeowners view this deal as “the devil you know is better than the one you don’t” and realize that if some new, unaffiliated owner came swooping in without this plan in place they’d probably disavow the deposits.

    The losers in this are the CS investors, who are Big Boys and no tears should be shed for them (unless they were defrauded, and I have not heard about any fraud lawsuits). So the unfortunate truth is that the local business people who have an unsecured debt to P/YC get hosed. In the Pivotal Plan, unsecured tradespeople and businesses are able to get up to $1,0000 from the reorg plan, so there are likely any who are losing a substantial amount of money.

  7. Fully agree with ‘Been there and done that. Better to know the Devil than not. I believe its a sad day for YC knowing they paid for this mess. Clearly CH gets the club for cheap. In your P summary, at least the deposits are still there. In the case of YC they are not. I guess we see by Weber’s comments we must be careful not to say anything which hurts the papers reputation. The hand that feeds them is clearly at work. Very Sad indeed.

  8. Mr. Webber

    I am sure you forgot to check your spelling and grammer in your response. Blogs are meant to provoke conversation are they not? I am very interested to know the plan by CH and if its like Been There Done That hs stated. Is the plan to get the club cheap? Can you tell us more about CH?

    Thank you.

  9. been there done that

    why are you convinced that the membership deposits are gone? what did YC members pay to join? how many members? In the case of P, there are about $20-25mm in member’s deposits, representing Ranch, Golf, or Equestrian Club memberships. If the bankruptcy court approves Pivotal’s reorg plan, any buyer has to honor those deposits. It’s not always this way, btw; members in condo/second home/planned community developments often get wiped out with the other unsecureds, but in the case of P, all parties (even CS) felt it was not in their best interest to piss off the homeowners too much (gotta keep those dues coming in….). It seems to me that CH’s DIP plan, which calls on the good graces of the members to pay ’09 dues quickly, should consider member’s deposits as well (members should strongly consider insisting the deposits be held as sacrosanct in any reorg plan in exchange for the early dues payments, IMHO). Remember, when you’re in CH 11 the bankruptcy court owns the property and member’s counsel should be working with the judge to strike deals like this.

  10. been there done that

    Promontory bank loan debt is trading at 30-40 cent on the dollar, and P is almost a self-sustaining enterprise at this point ex. the undeveloped lots – I wouldn’t pay 30 for YC

  11. Dear Readers,

    I have a fact which everyone can verify now. After making calls based on these blogs I managed to get the records in Riverside California:

    Here are my findings:

    Stewart Title Riverside
    Filed at request of: Goulston & Storrs, PC acting for CIP Yellowstone Lending LLC on August 13, 2008 with owner of Real Estate called Porcupine Creek which is called Blixseth Group Inc and Oregon company.

    Doc # 2008-0447452

    Larry W Ward is the recording clerk in the office of the recorder.

    The other update is from CIP filing notice of default on October 3, 2008 and seeking deliverance of foreclosure notice.

    Now, this does seem to have some relevance on how CH was able to gain support from the largest shareholder to squeeze out CS?

    So, in reading the 40 page agreement on file, it also bring into question the 1st over some piece of land called Family Compound and the mention of Greg LeMond.

    Well, these are facts and the above is a good reference for those who wish to read about this loan in default which was good timing I guess if you are CH its a great plan to buy the club cheap and not so good if you are CS or Greg Lemond.

  12. The deposits for YC are missing, all 88 members x 250K on the average. This was told in court in Montana and reported by this paper and the WSJ. There was no deposit account, the money was spent, poof, gone like a bandit. So can you advise me what happens then in BQ 11. Does the new owner put the deposits back or are they lost all together? In the case of P, the deposits are still there correct? Cananyone confirm for 100% the YC deposits are spent as well or did the press get this wrong?

  13. Correction all paying members at 288 as some do not pay fees as they are honored guests such as Warren Miller and other Celebs

  14. been there done that

    The P membership deposits are not in a bank account earning interest; they are an unsecured liability of the developer. It’s like the movie “It’s A Wonderful Life”: the money not’s in the bank vault, it’s in Harry’s house!!! The membership deposits aren’t in a bank, they didn’t go “poof”, they’re in the YC golf course, clubhouse, ski mountain, etc. Until/unless the club goes equity, that’s how it works. And yes, the developer is like Mr. Potter!

  15. Thank you for the exlanation. So this means part of the assets being Warren Miller lodge belong to the members but with a slight problem in so much that Cs is owed 307m correct?

    So lets assume CH buys the club on the cheap, where then is the deposits or does CH get those to go away. Very confusing t say the least. Can you explain how P has gone for 10 months and if you believe YC will follow suit? Is P selling land presently? How much are P annual dues?

  16. Is there anyone from Idaho who knows how their BQ is going and how those members are staying in there? YC seems to get all the attention.

    Does anyone know anything about CH? How successful are they? Any news on Discovery Land Co and how they are holding up? CNL properties just bought out 3 ski resorts today for 135m so seems there are investors to buy these no selling resorts for peanuts. I guess CH played this correctly, squeezed Blixseth out of her house to take over her vote as 95% shareholder and follow their plan to place CS into the corner.

    Has ayone heard about how CS depo’s went with CH and Blixseth saturday? New West do you have any news on those Depo’s. I would think the Montana judge was quite upset to have this thrown in his face and ruling. Poor CS!

  17. Sorry, one more question, during P do you know if Cs can block a sale of shares for change of control in the entity they loaned to as in the case of YC, a change of control was not allowed and triggered the loan repayment. Under a BQ, is this clause valid? Meaning can CH take over the shares of Blixseth given Blixseth owes CH 35m? Seems to me CH should give back the house and take over the 95% shares of YC. Any comments or thoughts?

  18. Thanks everyone for the comments, especially on the Promontory and Tamarack situations. It does seem like there are interesting parallels between YC and Promontory; ‘been there done that,” you said Promontory was now self-sustaining and the debt is trading at 30-40 cents? That’s not as bad as I might have thought. Is the revenue just from member dues and fees?

    A lot of strange things can happen in bankruptcy court, as I know from previous experience at a company that went bankrupt in rather spectacular fashion. One of those strange things is when the owner of the company triggers a bankruptcy and then is able to buy back the distressed assets on the cheap (this actually happened in my situation). Seems unlikely that Pivotal Group would ultimately be able to pay its pension fund investors at the expense of CS pension fund (or other) investors (since debt trumps equity), but who knows.

    In my experience, *everyone* is Machiavellian in a corporate bankruptcy proceeding, at least to some degree, it’s the nature of the beast. And my understanding is that bankruptcy judges have pretty broad latitude to act in the interests of all creditors, not just those with first lien, so I’d be surprised if putting the CH DIP loan ahead of the old debt is really that unusual or precedent-setting. But I could be wrong about that.

    At YC, the notion of the members buying it back does seem to make some sense. Since CrossHarbor is a sort of “super-member,” and has the support at least of those members who have been engaged, it kind of looks like a member buy-out anyway in some respects.

    In response to requests for more coverage of certain aspects of this, including more detail on CrossHarbor and more exploration of the Tamarack situation, all I can say is, we’re working on it! Despite what some people on this thread seem to think, we are a small, independent news organization, we are supported entirely by the advertising and conference revenues we generate through our work, and we can’t always cover everything as quickly or thoroughly as we’d like. But we’re working on it. Please keep the useful info coming, and feel free to email or call me directly. Thanks!

  19. PrivatePowder,

    Here is a snapshot of the Tamarack saga:

    Tamarack is set up different than YC. The resort is now run by a receiver and is planning to open Dec 12. It has sold itself as being exclusive and having a club concept, but open to the public. Maybe more in the line of Deer Valley. The base area and real estate development are on about 2,000 acres of private land and the mountain (2,140 acres) is leased from the State of Idaho. While they have advertised capping the skiers on the mountain at 2,000-2,500 per day, they may have only come close to those numbers a couple of times. CS kicked in $10 million to winterize the unfinished 120 unit Village Plaza and operate this winter. The Plaza was 100% pre-sold and the deals all expire 12/31/08 since it is maybe only 50-60% complete. The original owner/developer has been given a small window to try to sell the resort and continues to be optimistic/delusional about pulling it off. (Aren’t they all?)

    Any property owner could elect to be a member of the Tamarack Club by paying the initiation fee which ran between $30-50,000 and dues. I’m not a member but know several. It basically functions like a country club. As a member they receive ski passes, early bird lift access, golf and marina privileges, members health club, etc. There might be only around 200 actual club members since out of 500 or so actual property sales many were to the same buyers. Every week brings new foreclosures. 95% LTV 2nd home Option Arm financing was rampant and is coming home to roost. The units never penciled as straight rentals. The current memberships only have value if Tamarack keeps operating but the $$$ invested are way less than YC. A land sale to a group lead by Andre Agassi and Steffi Graff for a 330+/- unit Fairmont Hotel fell through as things buckled, although they still own property here.

    Because Tamarack is an in place ongoing public mountain resort with a private component, I believe CS feels that there is a better chance of at least getting control of the reasonably extensive assets and getting some of their money back. The club members have little if any control and their dues aren’t a major source of revenue compared to the operating revenues. I’m not totally familiar with Moonlight Basin and its club concept, but it sounds like they are in a similar position as Tamarack. My guess is Boyne will probably scoop them up on the cheap in the future as they will have no place else to turn. Tamarack also has approximately 1,600+ units of permitted lots, condos and hotels under its master plan that have not been sold and a potential land swap between the Feds and Idaho Lands for 8,000 acres of land which the State intends to lease to the resort.

    The total build out is 2,100+/- units, including 1,000 in the village and the balance in single family product plus a golf course, marina and potential 10,000 acre permitted ski area, larger than Vail.

    The stakes are different here, but there is no shortage of drama. I figure it is too hard to replicate what they have built here and someone will pick it up if the price is right. There is some quiet talk of a very large private investment group buying the CS debt cheaply and based on what I know, it seems plausible. We’ll see. If not I’ll be hanging out there with my sled and skins. Hope this gives you some insight on the Tamarack Tale.

  20. Isn’t the relevant question “Who is in the best position to make the Club succeed, thereby providing money to a tax base and jobs to the local economy?” Perhaps as a residual benefit, some party profits by buying the assets at a price below its peak, but what is the crime in that? If I’m the tax base or the local economy I want the guy that gets has a vested interest in having the place succeed as an ongoing entity, and has a vested interest in maximizing the long term value; price is irrelevant. Which party fits the later part of that bill?

    Now, let’s address the flip side of that coin. Who profits from not having CH succeed? I would suggest one of the few answers to that would be “anyone that tries to discredit them and their motivations by clinging to statements that are largely irrelvant.” Pointing out that one party might profit is interesting theater. It is also a thinly veiled attempt to distract anyone from the important question: who is most likely to make the Club succeed? Either this Natasha has some economic interest in seeing CH’s investment fail even though that failure has a dire effet on real lives of a wide range of people or she is trying to get out of jury duty. I hope it’s the latter becuase if it’s the former, that whole “party without large vested interest fails to care about the implications of failure of an investment” is is a story that’s sort of out of vogue these days.

  21. so that you remember, these are the conditions which must be achieve to avoid chapter 7 and so you understand, selling plots of land presently is less odds then a lottery ticket.

    Certain Conditions Apply:

    *****On or before December 26, 2008, Debtors shall collect full first-half dues from at least eighty percent (80%) of the Yellowstone Club members in accordance with the Approved Budget from those members required to pay dues. Membership dues shall be used and applied to pay expenses in accordance with the Approved Budget.

    *****On or before February 13, 2009, Debtors shall file a proposed Chapter 11 plan of reorganization and disclosure statement thereto all in form and substance acceptable to the Agent (the “Plan Documents”). In the event that Debtors fail to file the Plan Documents on or before February 13, 2009, along with a motion seeking approval of the disclosure statement and solicitation procedures, the Interim Order and Final Order (and any other orders of the Bankruptcy Court governing the Debtors’ exclusive periods under 11 U.S.C. §1121 to file and solicit acceptances of a plan of reorganization (the “Exclusive Periods”)) shall provide that the Debtors’ Exclusive Periods shall terminate on February 13, 2009. Debtors shall be in default under the DIP Loan unless Debtors have filed the Plan Documents in solicitation motion on or before February 13, 2009 or, alternatively, the Bankruptcy Court has previously entered an order that terminates the Debtors’ Exclusive Period as of February 13, 2009.

    *****On or before February 28, 2009, Debtors shall collect full second-half dues from at least eighty percent (80%) of the Yellowstone Club members in accordance with the Approved Budget from those members required to pay dues. Membership dues shall be used and applied to pay expenses in accordance with the Approved Budget.

    *****On or before March 31, 2009, the Bankruptcy Court shall have confirmed the reorganization plan contemplated by the Plan Documents and that is acceptable to the Agent.

    *****If the reorganization plan contemplated by the Plan Documents is acceptable to the Agent and is not confirmed by the Bankruptcy Court on or before March 31, 2009, Debtors shall be required to commence a sale, pursuant to Section 363 of the Bankruptcy Code, of substantially all of the Debtors’ assets, which sale shall be consummated on or before April 30, 2009. Any sale of any assets of the Debtors at any time during the Cases shall be conducted only on terms and with procedures that are agreeable to the Agent, and the commencement by motion or otherwise of any such sale on terms and with procedures that are not approved in advance by the Agent shall be an immediate Event of Default.

  22. Finally,

    What, if any is CH going to do about its loan which is in default for 35m with Blixseth? If she can not repay this amount, what position or leverage can CH use to benefit YC, if any or at all? The recording number is valid and its very accurate with the guarantees given, thus CH has the ‘First over the famous FAMILY COMPOUND IN YC’ where CH can build new condo’s again correct? So can anyone tell us or advise us the plan of CH to collect money they have loaned Blixseth? Surely their investors must want to know how they get that money back correct?

    Thank you

  23. been there done that

    crossharborcapital.com: the website is pretty thin but some basics are there. A google search will help a bit. Like any other private equity firm, CH raises funds from institutional investors for specific investment strategies. They typically have full discretion over how to invest those monies. Some of the big western public pensions – including Wyoming – have been big (& successful) PE investors over the years. My guess is that you can search somewhere on these state’s websites and determine if they are investors with CH. You may also want to check to see if some of your wealthy members, through their firms, are CH investors. For example, I hear that Microsoft and the Gates Foundation just happen to have some cash laying around….
    Natacha, you seem to have a lot of issues here with tactics CH has used to get control, but they probably have deep pockets and are likely to try to buy YC on the cheap. Again, as Boris points out, not a “bad” thing for most of the parties involved. It’s the local companies that are the unsecureds that really get left out.

    The fact that CH couldn’t raise money for the Club over the past few months is simply a sign of the credit crisis. There are plenty of high quality investments out there that start cashflowing immediately and earn 15%. Run the cahflows on YC, assuming no lot sales for a few years but all the taxes and expenses of operating the club. Then assume you start to make a few lot sales out 2-3 years, when this real estate debacle is nearing an end. Assume that any savvy instituitonal investor would require at least a 25% return for making this bet. When I run those assumptions & numbers on Promontory, I get that the club is worth maybe $50mm. Now, I’m not a Promontory insider and am “guesstimating” a few of the expenses, bt I think I’m in the ballpark. I don’t recall the exact value from the most recent appraisal (early 2008), but it was in the $400-600mm range, and the CS debt is $350mm, so perhaps you can benchmark YC off thse numbers. And, to get back to the original point, why would any potential investor want to buy the CS debt when YC only has a fraction of the market value it once did? Trust me, the capital mkts have been frozen for the past quarter.

    Jonathan, Promontory revenues are all dues & fees. The HOA has been solvent throughout this process, supported by members dues and a small developer support payment,which he has continued to make. The golf courses, clubhouses, restaurant (open all year) probably run at a $2-ishmm deficit, but with over 600 members it wouldn’t take a big increase in dues/fees to cover the costs. The big issue is when & at what price will new lot & home sales occur, because that’s the only way the developer can generate reasonably cashflow to justify the equity investment (the developer not only sells lots but also “cabins”, which are 2000 – 4500 sq ft homes – no condos at Promontory). I don’t have the exact numbers in front of me, but lot sales were (very) roughly something like 125-150 in 2005, 100-125 in 2006, 70-80 in 2007 (but very few towards the end of the yr), and none in 2008 (besides a few secondary sales).

    My quotes on the debt are a few months old. It trades pretty infrequently and may be lower now.

  24. Many thanks for the limited info on CH. WE have done this search on them and its a mystery apart from one person joining the firm and another person employed with CH to work at YC. We really should look at the funds available from Ch to carry YC till the market turns and values rise correct? So what is the past track record for CH? How are they doing over the last 18 months? Clearly they have some big investors from Boston and its news to learn Wyoming is there as well. So, maybe NEW WEST can interview them and see who they really are and the real plan? this would solve alot of these questions. Let them speak about there great plan and what if the plan fails, then what? I think its important to know more about the group who promises a future and how they are going to pull this off as opposed to running the same old bad news. Lets see the positive news. I welcome reading the turn-around for YC dont you? After-all its important for the local community to know who is going to do this and we should have a right to know more about them correct? Clearly someone at CH will tell NEW West the real story? Lets not guess, its time for an interview with CH. I agree to wait for the interview and article and reserve my comments until this is done. The Jury is out so to speak and await NEW West to drive this story. Will SB or CH step up to the plate to inform Montana of their real plans and how to save YC?

  25. been there done that

    Whoa – I did not say that WY was an investor with CH, merely that the western states are known as large private equity investors in general. CH are a private company and the only way to see their track record is to find public pensions that have invested with them since many of these public pensions are required by law to disclose who they are investing with and the performance of those investments. If you want to figure out if Wyoming has an interest with CH:

    retirement.state.wy.us

    6101 Yellowstone Rd # 500
    Cheyenne, WY 82009
    (307) 777-7691

    Give ’em a call! (But this seems like a project for Mr. Weber!)

    Natacha, the cheaper that CH can buy YC the better off you are. Like I said earlier, the only ones who get hurt if CH buys it cheap are CS’s investors. In regads to future plans, if the county planning board up there is anywhere as tough as they ones in Utah, they’ll tell CH to complete the master plan for YC as originally laid out. And if they want to change anything, they’ll have to lay out an entire new master plan so you’ll have plenty of notice and time to disagree. Right now, you should hope that YC gets out of bankruptcy ASAP to help preserve value, get your membership deposits affirmed by the bankruptcy court, and get the non-member unsecured paid something – that’s all you can do at the moment.

    So for all this great information, who’s going to let me spend a weekend at their place at YC so I can see it for myself?!? I’ll swap you for a golf weekend @ Promontory!

  26. Great Blog above. Take notice

  27. Natacha, since you seem to be all knowing about all things YC related, equity and debt related and have an intimate knowledge of CH, who exactly should control the club in order to create the best possible product for the members who have paid real money to enjoy all that the club (and land) provides? Also, who is best suited to operate the club so the local economy can leverage the club and pump real dollars into the valley? You point alot of fingers, make false accusations and offer no real solution.
    Classic no name blogger.
    CH has made a massive investment into the YC and from what I understand, has paid all of it’s bills on time and in full. For those of you wondering, CH is a highly successful private equity firm that focusses primarily on real estate and the debt and equity markets that surrounds all asset types. Sam Byrne, his partners and his firm have a stellar reputation in business and in the community. In my opinion, CH is simply trying to protect it’s initial investment by gaining control of the club. Without that control, CH’s investment is in peril. If CH has to spend more money, take more time and take more risk to achieve it’s investment goals I’d say that is their perogative. For those that invest in the stock market, it’s a pretty basic strategy.
    I think it’s also important to point out that CH didn’t develop the property, didn’t secure the loan with CSFB, didn’t cause the divorce, didn’t hose Lamond nor are they responsible for creating the bankruptcy and the associted long line of creditors. The fact that CH is now trying to protect it’s investment in a bankruptcy situation should not come as a surprise to anyone involved regardless of the high emotional nature of this situation. Lastly, if I were a member (which I am not), I’m pretty sure that I would want someone with skin in the game to be running the show, controlling the marketing, sales and rebranding of my club. I’m pretty sure CSFB is not the right group to handle such a massive and complicated udertaking. It’s not what they do.
    Been there done that seems to have the best, most rational and non emotional perspective on this mess that the Blixseth’s created. I’m not sure if the membership deposits have evaporated or not nor, in the whole scale of the project, whether it’s really meaningful or not but the sooner that the YC gets out of bankruptcy and starts the healing, marketing and sales process the better off the whole Big Sky community will be. So, Natacha, please let us all know who or what entity should control and operate the YC. I’m sure we’d all love to experience your massive brilliance on line. Also, I need my house painted, how can I reach you?

  28. I have deleted the recent comments relating to “Natascha” and her identity, as well as the most recent post from Natascha, as we are in the process of confirming the information and whether she is in fact a direct party to this case. It is not our policy to publish the identity of anonymous posters. However, in cases where we feel there has been deliberate misrepresentation and/or repeated violation of the terms of service that policy does not apply.

  29. Potential Homeowner

    Seems to me what is likely to happen here is that CH is providing bridge funding. After that, each homeowner ponies up another $200k for a total of $60M. That’s probably enough for the homeowners to buy out the debt at a steep discount. After that, YC raises dues to around $40k per year. Together with other income, that generates a total of $15m a year…. enough to operate the Club at a somewhat reduced level. If I were a homeowner and had already put in $2m for a lot, $4m for a house, and $250k for membership, the extra $200k is a small nut to protect my investment. Future real estate sales provide funds for development of additional club facilities. At 500 to 600 members, annual dues will support a fully operational club budget. CH probably ends up with a cut on future real estate sales to compensate them for the financing they have provided. Seems like a good deal for everyone.

  30. Mr. Webber,

    I am not a friend or foe of either party involved, but I am interested in this debacle from the stand point of how it affects the local economy. While the overall economy is the main problem, the sad fact is that many of us are being affected by the actions of three people. Sam, Tim and Edra caused this mess, and we are all feeling it. This blog is a great way to gather information and to voice concern; however it does little good when you censure opposing positions.

    Just asking around town, I have had multiple people confirm some of these “rumors”. For instance, no one seems to deny that CrossHarbor interests have a financial stake in the NewWest ops. Can you absolutely deny that Byrne/Blixseth interests have no influence?

    I also have to question the “openness” of your forum when you tend to delete the opinions of one side but not the other.

    In fact, this is YOUR site, and you have every right to post or delete whatever you wish. It is just frustrating to not get the entire story. Whether Credit Suisse, Cross Harbor, the Members, or some other consortium ends up owning the club, someday this saga will end, and the readership will again focus on the journalistic integrity, or lack thereof which played a part in the outcome.

  31. Regarding the investors in New West, this has never been a secret, and I can state categorically that neither the Blixseth’s, CrossHarbor, Sam Byrne nor anyone else in this drama have any financial interest in New West or any personal relationship with me or anyone else at New West. There are 19 individual investors in New West. The larger shareholders include Brad Feld, Maury Povich and John Connors. No shareholder (except me) owns more than about 15% of the company. TRipley, I have no idea who in Big Sky would think they are in a position to “confirm” “rumors” about our ownership, but they are obviously full of it, all anyone has to do is ask me.

    I have a long and very public track record as a journalist, anyone is welcome to do a search and see my backround and that of New West. I do not appreciate having the integrity and ethics of myself and my staff called into question by anonymous commenters who have not bothered to do a simple search for public information.

    The policy on comments is pretty straightforward. I have deleted comments that include personal attacks on the ethics and motives of the people involved. There are two commenters who have repeatedly attacked Sam Byrne in very personal terms, they are anonymous and appear to be direct participants in the situation. This kind of commentary is unacceptable under our comment policy and terms of service, and I have both an ethical and legal obligation to delete such comments.

    If similar anonymous personal attacks were advanced against the Credit Suisse team or anyone else (except me I guess) I would delete them as well.

    All of this would be a lot easier if the insiders who have something to say would put their name behind it.

    My analysis of the situation is based on my reporting and Bob Struckman’s reporting. People who don’t like my analysis, or disagree with it, have resorted to baseless, anonymous attacks on my integrity and that of others involved rather than refutation of the arguments. So be it. I have bent over backwards to keep these comment threads within the bounds of basic ethics without shutting them down. The comments from Natasha in particular have been very repetitive in their vitriol towards Sam Byrne, but even in that case I have left many of them up and only taken down the ones that in my judgement have crossed the line.

    I do very much appreciate the many comments that have been additive to the discussion, thanks to all of you who have participated in a constructive way.

    RonBigSky, regarding real estate appreciation in Big Sky, I am looking for the reference but I know that the Big Sky Realtor group reported numbers that indicated a tripling of values in that period. I will look further on this, and stand corrected if I was wrong.

  32. been there done that

    Frankly, it wouldn’t be too hard to put together a spreadsheet to calculate a fair mkt value for YC. Determining the APPROPRIATE fmv is another question, because that entirely depends on when the luxury second home market comes back to life. It’s fairly deterministic to calculate ongoing expenses of operating YC; the guesswork is timing of real estate sales. Also, you need to assume that any investor coming into this deal wants a 20-30% rate of return on the investment, which is way above what was standard a few years ago. When you run these numbers, you’ll see there’s no way that CS debt investors are getting their money back. Nonetheless, I can promise you that CS is currently hiring an appraiser to give some inflated value for the property to influence the judge; CH will find their own appraiser to give a much lower estimate so they can justify buying at a discount. Promontory had two appraisals done by licensed, experienced appraisers that were different by hundreds of millions of dollars. Let’s the games begin!

    As far as CH goes, I can speak from experience that CH has deep pockets and relationships with large pools of capital such that, if they felt YC was viable, they and partners could easily buy the club. Someone voiced a fear that because CH’s YC exposure is already large, they might only be interested in saving themselves. That’s something to get managed thru the bankruptcy court process and CS. The role of a bankruptcy judge is to look out for everyones interests, not just CH, and shouldn’t let CH liquidate its interests before YC is right-sided. Also, I assume that an unsecured creditors committee has been formed, and I’m willing to guess that the majority of the unsecureds are homeowners so they should dominate the UCC. The UCC and the judge are the main avenues for protecting the homeowners if CH doesn’t take everyones interests under advisement.

  33. Been there.

    Great blog and well written. Lets give everyone time to see what happens. CH is at least trying and thats more than those who attack. Give them a chance.

  34. When do we get to see the guys who ripped off the system doing the “perp walks”?
    More than a few people have violated a fiduciary responsiblity with investors and bond holders and us “little people” want our pound of flesh.