Update: Judge Ralph B. Kirscher this afternoon ruled in favor of the CrossHarbor Capital financing plan, rejecting arguments from Credit Suisse that it did not provide “adequate protection” for the primary lender. The ruling assures that the club will remain be be open and operating more-or-less normally for the winter season. Full story to come shortly.
In a last-ditch effort to regain control over the bankrupt Yellowstone Club, lender Credit Suisse this week proposed a new interim financing plan, and sought at a hearing in Missoula Thursday to paint a picture of inappropriate collusion among club owner Edra Blixseth, club manager Discovery Land Co., and the current interim lender, CrossHarbor Capital Partners. Credit Suisse is trying to block final approval of a $25 million CrossHarbor financing, which was given preliminary approval two weeks ago, and replace it with its own $23 million financing and thus preserve its “first lien” against Yellowstone Club assets.
Credit Suisse, the club’s primary lender, is owed $307 million, and normally would be in the driver’s seat in a bankruptcy proceeding. But the bank was unable to come up with the money for a so-called debtor-in-possession loan two weeks ago, opening the door for CrossHarbor to fund the club through the winter season. The hearing will continue Friday.
Edra Blixseth was once again in the witness chair Thursday, and was grilled by the Credit Suisse legal team on what lead attorney Mark Chehi characterized as a “spider’s web of arrangements” that allegedly existed among Blixseth, Discovery Land Co. and CrossHarbor prior to the bankruptcy. CrossHarbor, a Boston-based investment firm led by Sam Byrne, owns a large chunk of property at the club and had attempted to buy it beginning last year. The implication is that Edra Blixseth was manipulated by CrossHarbor and Byrne as part of plan to get the club on the cheap – something they vehemently deny.
The Yellowstone Club is a private ski-and-golf club for the uber-rich in Big Sky, Montana. Founded by one-time timber trader Tim Blixseth, the club has been devastated by the real estate meltdown, the divorce of Tim and Edra Blixseth, and dubious use of many hundreds of millions in loans, member dues, and real estate sale proceeds. For the bank, the Yellowstone Club loan was perhaps the worst of a series of ill-conceived resort loans that could ultimately result in billions in losses.
The biggest surprise Thursday came when Ron Greenspan, who was appointed as the restructuring officer of the club in connection with the bankruptcy, testified that Credit Suisse’s collateral included $275 million in promissary notes from the Blixseth Group, which is now owned by Edra Blixseth. While it’s unclear whether Blixseth Group currently has assets worth anywhere near that, the existence of the notes had not previously been disclosed and could undermine Credit Suisse’s claim that it doesn’t have sufficient collateral and thus can’t be pushed out of its first lien position. At some point the assets of Blixseth Group included extraordinarily expensive houses in Palm Springs and in Mexico, as well as several exotic overseas properties, but some of that has gone to Tim Blixseth as part of the divorce settlement.
The Missoula courtroom was crowded Thursday with dozens of lawyers representing an array of creditors and members. Bankruptcy Judge Ralph B. Kirscher has taken a wry view of the proceedings, and appeared inpatient with the spectacle of thousand-dollar-an-hour lawyers and their rich and powerful clients fighting tooth-and-nail rather than working out a deal. Opening the hearing, Kirscher first asked if everything had been worked out outside his courtroom, saying to chuckles, “with all the qualified people” in the room, “there must be a resolution.”
While it is highly unusual for a major lender to be pushed out of the first lien position in a bankruptcy, Credit Suisse may turn out to be too late with its latest plan.
Kirscher at one point directly questioned Edra Blixseth as to whether she had been pressured or threatened by Credit Suisse. A number of lawyers connected with the case have marveled at the level of hardball being played by the bank, which is protecting not only its own interests but those of the institutional investors to whom it sold the loans. Members and unsecured creditors – including many tradesmen in Bozeman and Big Sky who have not been paid – have generally supported the CrossHarbor plan.