In notices filed late Wednesday, Credit Suisse said it plans to depose Sam Byrne of CrossHarbor Capital Partners, the Boston-based hedge fund that won a struggle to fund the penniless club until the end of April, as well as the club’s professional managers and a representative of the leading member group.
Edra filed for Chapter 11 bankruptcy protection for the Yellowstone Club on Nov. 10, citing debts of more than $360 million. The club had no money and was on the brink of closure. The largest creditor is a collection of investors led by Credit Suisse, who are owed more than $307 million. Chapter 11 allows a business to remain open while reorganizing its debt.
Edra won control of the club in August after a bitter divorce with Tim Blixseth, the club’s founder, and the architect of its monumental debt. So far in the proceeding, Tim has been notably absent, although a lawyer representing him recently signed onto the case. When Edra took over the club, its finances were in shambles, its accounts virtually empty. Some news outlets have described the Yellowstone Club as the victim of the worldwide financial crunch, but at the bankruptcy hearings it seems the club was a financial train-wreck-in-progress years ago. Member deposits of more than $88 million, for instance, are gone, and one allegation in a previous lawsuit says Tim and Edra Blixseth funneled more than $200 million of the Credit Suisse loan to themselves as profit, spending it on private jets and California mansions.
As the party with the largest debt, Credit Suisse plays a primary role in the bankruptcy hearings and, until last week, stood first in line to get repaid when the club gets sold. One count of the total number of art galleries, food purveyors, contractors, builders and others owed money by the club came to 1,122. Those include Northwestern Energy, owed almost $247,000.
But Credit Suisse lost its leading position among the debtors when its investors balked at the prospect of funding the club through the winter, walking away on the morning of a bankruptcy hearing just days before the club would have again run out of money. Credit Suisse had provided the first operating loan of about $4.5 million in early November.
If CrossHarbor had not stepped forward with a $20 million loan of its own — which included a provision to move the company to the head of the line of creditors — Credit Suisse would have closed the club and sold all of its assets by January.
U.S. Bankruptcy Judge Ralph Kirscher sided with the CrossHarbor proposal because the club will likely be worth more as a going concern.
But Credit Suisse has indicated it doesn’t plan to roll over easily. Its lawyer, Mark Chehi of Skadden, Arps, made a formal objection. At the hearing Chehi had tried to build an argument that Sam Byrne of CrossHarbor had conspired with Edra Blixseth and the club’s managers and members to edge Credit Suisse out of the club’s financial picture.
But Judge Kirscher didn’t seem to see any merit in Chehi’s suggestions, at one point chiding him to quit repeatedly prodding one witness with the same question.
“I think he’s answered the question,” Kirscher said.
With the depositions, the Credit Suisse legal team seems to be positioning itself to ask its questions again. All the parties will reconvene in Montana next week on Dec. 11 for the next court hearing of the bankruptcy of the West’s preeminent playground-of-the-rich.