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” and from the sale of the Chateau de Farcheville in France.
All unsecured creditors, with the exception of some members with special claims, should get paid in full under the deal.
U.S. Bankruptcy Judge Ralph B. Kirscher approved the settlement today, though final approval of the club’s Chapter 11 bankruptcy reorganization, which will incorporate the settlement, will probably not happen for another week as a variety of comparatively minor details are resolved.
Credit Suisse, which has waged a fierce and sometimes quixotic battle to gain control of the club on behalf of its lender group since the bankruptcy filing last fall, was under heavy pressure to cut a deal after Judge Kirscher ruled last week that bank’s behavior in brokering the loan was “predatory” and “shocked the conscience” of the court. The ruling “subordinated” the Credit Suisse lender group’s secured claim to those of unsecured creditors and thus took away the leverage Credit Suisse would normally have had as the first lien holder on the club’s assets.
The Judge’s ruling against Credit Suisse, which came following a bankruptcy court trial known as an adversary proceeding, was only a partial and interim ruling. Under the settlement, the claims against Credit Suisse will be dropped, and thus the bank might escape what would likely be a highly negative final ruling in that case.
The settlement does not, however, include Tim Blixseth, who was also on trial in the adversary proceeding for breach of fiduciary duty and fraudulent transfers in connection with the original $375 million Credit Suisse loan. Blixseth now faces a number of legal claims – from the club, from Credit Suisse, from the minority shareholders in the club, and possibly from his ex-wife Edra – in connection with his transfer of money and assets out of the club.
“I’m extremely happy for the club,” said CrossHarbor principal Sam Byrne after the hearing Monday. “I think it’s the right thing for the club and I think Credit Suisse recognizes that.”
“I’m going to get some sleep,” he added.
Edra Blixseth, who is nominally the owner of the club but will be out of the picture once the sale to CrossHarbor is complete, called the outcome “bittersweet” for her personally but a good thing for the club.
“The whole goal was to get the Yellowstone Club on the right footing for the members and the employees and the community, and that has happened,” she said.
Edra Blixseth is now in personal bankruptcy and owes more than $100 million to a number of banks and other creditors. “The personal toll on me was not at all what I expected,” she added. “I was not expecting the personal attacks from Tim [Blixseth] and Michael Flynn [Tim Blixseth's lawyer].”
Tim Blixseth and Flynn have in alleged that the club’s bankruptcy was Edra’s fault and that she had conspired with Sam Byrne to get the club on the cheap.
Byrne and CrossHarbor appear to have broad support from the club members, who have also been invited to participate as financial investors in the CrossHarbor deal. Jonathan Alter, an attorney representing a large group of members, said the members were “extremely satisfied” with the outcome, and especially that it assured that the member contracts remain in place and that all vendor and employee claims will be paid.
The settlement agreement also included giving Credit Suisse and its noteholders the right to co-invest alongside CrossHarbor.
The liquidating trust that is part of the plan will be responsible for collecting any outstanding money and paying off claims according to priority. The funds will apparently come mainly from any money that can be collected from Tim Blixseth, who took $209 million from the Credit Suisse loan as a “loan” to BGI, the family holding company. While responsibility for the BGI loans was transfered to Edra Blixseth as part of the couple’s divorce settlement, Tim Blixseth could be still held liable, especially if Judge Kirscher rules against him in the adversary proceeding. The trust could also collect money from the sale of non-core assets, including a golf property in Scotland.
The French chateau, which itself is apparently in bankruptcy proceedings in France, will not be part of the liquidating trust but rather will be given directly to Credit Suisse as part of the settlement.
The money for vendors and other trade creditors will include about $2 million from the sale proceeds and $15 million from the trade creditor fund. For the money coming from the liquidating trust, the first $2 million will also go to unsecured creditors, the next $15 million will pay back the trade creditor fund, and the $10 million after that will go to unsecured claims that are not trade claims – mainly claims from people who joined the failed Yellowstone Club World, from Greg Lemond and his associates (who are still owed money from a prior legal settlement), and possible from the minority “B” shareholders. Only then will the Credit Suisse group get any more money.
The club will now be run by CrossHarbor in partnership with Discovery Land Co., a developer of exclusive clubs around the country. Resolution of the bankruptcy should remove the uncertainty that has helped to freeze lot and membership sales, though it remains to be seen if and when demand might recover. Membership at what is touted as the world’s only private ski club has in the past required a $350,000 deposit, plus $18,000 a year in dues, and lots start at about $1.5 million.
Sam Byrne, whose firm runs a group of real estate investment and distressed asset funds, was initially a member of the club before he began to invest in development projects there, and he ultimately tried to buy the club from Tim Blixseth. His development plan includes more focus on condo development in the base area, and more skiing on one of the peaks at the 13,500 acre property.
For more coverage of the Yellowstone Club bankruptcy and more articles about the collapse of the high-end resort economy in the West, click here or see a list of related stories below:
- Citing “Naked Greed,” Judge Eviscerates Credit Suisse in Yellowstone Club Case
- Yellowstone Club Bankruptcy Showdown Enters the Home Stretch
- Yellowstone Club Auction Draws Few Bidders
- The Case Against Edra Blixseth
- Yellowstone Club: How to Go Broke on $375 Million
- Yellowstone Club: Tim Blixseth, Credit Suisse on Trial
- Bankers on Trial: Credit Suisse, the Yellowstone Club, and the Real Estate Collapse