The Promontory Club near Park City, Utah, which like many of its luxury resort brethren fell into bankruptcy last year, will most likely be taken over by Credit Suisse and its loan partners under a reorganization plan that was agreed to earlier this month by all the key parties. If the plan is formally approved by creditors and the court, Promontory could emerge from bankruptcy as soon as March.
Promontory would the first of the troubled Western resort projects to emerge from Chapter 11 bankruptcy protection, which club managing director Rich Sonntag said could enable it to get a jump on any “pent-up demand” for luxury mountain resort properties. The Yellowstone Club in Montana, Tamarack Resort in Idaho, and Lake Las Vegas in the Nevada – all of which received large loans spearheaded by Credit Suisse – are among the resorts currently in bankruptcy or receivership.
Promontory, a 7,200 acre golf and equestrian property just outside of Park City, borrowed $350 million from two Credit Suisse-led groups in 2005. As in the case of several other similar loans, the loan proceeds went primarily to the developer rather than to the club itself, leaving Promontory strapped for cash when the real estate bust hit. Promontory was created by the Arizona-based real estate firm Pivotal Group, led by Francis Najafi, with a substantial stake owned by an Arizona public employee pension fund.
The proposed Promontory reorganization plan includes two possible outcomes. Under Plan A, the lenders represented by Credit Suisse will take ownership of the club and attempt to raise $70 million in new financing to pay back an interim loan and cover operating losses anticipated over the next few years. $275 million of the existing $350 million in debt would be converted to a $90 million debt, or perhaps eliminated altogether depending on market demand for the new loan. (Holders of a more junior $75 million loan would get warrants for equity in the reorganized company). If the new $70 million cannot be raised, a Plan B calls for the club to be sold at auction in April, a scenario which could also result in the Credit Suisse group owning the property via a so-called “credit bid.”.
The secured creditors – primarily the holders of the $350 million in debt – will receive no cash in the short term under Plan A and will be dependent on a future sale of the project to recover any money. The fact that Credit Suisse and the lenders are all-but-obliged to take ownership of the property – rather than find a buyer who can pay back the loans – illustrates the absence of investment capital for luxury resort projects in the current economy.
On a more positive note, the plan calls for most unsecured creditors to be paid. Anyone owed up to $1,000 will be paid automatically, and trade creditors and others with ongoing contracts will likely get most or all of their money, Sonntag said.
“Keeping faith with the local community is very important,” said Sonntag. “We all feel pretty good that this will be a good result.”
He was also hopeful that a “clean bill of economic health” would help to re-start lot sales. Promontory has sold 730 lots out of a total of 1,924, and the reorganization plan does not anticipate a true market recovery until 2012.