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Edra Blixseth, owner of the Yellowstone Club, at a legal hearing last summer.
Edra Blixseth, owner of the Yellowstone Club, at a legal hearing last summer.

Yellowstone Club Bankruptcy Exposes Brutal Financial Showdown

Once touted as the world’s pre-eminent leisure community for the mega-rich, with billionaires from Bill Gates on down among its members, the Yellowstone Club near Big Sky, Montana, doesn’t have enough cash in the bank to buy propane, owner Edra Blixseth said in bankruptcy court in Missoula Wednesday.

The four companies that operate collectively as the Yellowstone Club filed for Chapter 11 bankruptcy protection in Montana on Monday, citing debts of about $360 million, most of it owed to a consortium of lenders led by international bank Credit Suisse. Chapter 11 allows a business to operate while it reorganizes its debt, and in this case the bankruptcy filing comes in the wake of an ugly divorce, allegations of large-scale financial impropriety, and a complete meltdown of the high-end real estate market and the credit markets that funded it.

The club doesn’t have enough cash to make its $600,000 monthly payroll for its 521 employees or to buy food for its restaurants, or for the electricity needed to operate the chairlifts at its storied private ski area. Last week, the club’s checking account had only about $40,000.

See related story: News Analysis: Tim Blixseth Absent from Yellowstone Club Debacle – For Now

That’s why U.S. Bankruptcy Court Judge Ralph B. Kirscher held Wednesday’s hearing on such short notice, so he might be able to OK an additional $4.4 million loan from Credit Suisse to allow the club to remain open for the next three weeks while the various creditors try and work out a long-term plan to save the club. The club has 360 members, and just a few years ago famously touted that not just anyone could buy in; you had to prove your net worth was in the millions, and commit to building an expensive home on the expensive lot you bought along with the membership. Now, though, it’s safe to say that people are not exactly lining up for the 500 memberships that remain.

In all, the club has taken in $88 million in membership initiation fees and about $5 million annually in dues, as well as $370 million in loans from international banker Credit Suisse. Yet the lodge and other infrastructure remain unfinished.

“Where did all the money go?” asked an attorney for club members.

That question had no answer, but other gambits were on display. The courtroom discussion about the bridge loan from Credit Suisse exposed the intense squeeze play as the various creditors vied for financial leverage.

At stake is who will emerge as the owner of the club after the dust settles, and at what price. There aren’t a lot of interested buyers in the current market, and as Edra Blixseth said, she’s only bothered talking to financial groups who already have “skin in the game.”

Those players include Credit Suisse, the club’s long-time lender, which is owed about $307 million, and CrossHarbor Capital Partners, a Boston-based hedge fund led by investor and club member Sam Byrne. CrossHarbor negotiated for more than a year to buy the club before the current crisis hit, and apparently saw an opening in the wake of the divorce of Tim and Edra Blixseth. According to testimony Wednesday, CrossHarbor loaned some $35 million to Edra to help her buy out ex-husband and founder Tim Blixseth.

CrossHarbor had offered a loan of $18 million to keep the club open until February 13, at which point — in the peak of the ski season — it would presumably have to be sold.

Edra testified that she had originally favored the CrossHarbor plan, but had a change of heart when Credit Suisse indicated it would fight tooth-and-nail against another entity gaining a priority lien on the club’s assets. She now supports the Credit Suisse plan, in which fees and interest account for as much as one quarter of the $4.4 million loan.

Edra gained control over the operation of the club in August, and vowed to get its overdue construction back on track and to keep its business out of the public eye.

Edra and the Yellowstone Club tried to take a step in that direction in September by entering a long-term contract with Discovery Land Co. of Scottsdale, Arizona. The company, which operates 15 other private communities around the world, took over the management of the club and planned to expand the residential community, infrastructure and amenities.

But the club’s finances were worse than she thought, she testified. Vendors hadn’t been paid. Staff morale was terrible. Employees were even using personal credit cards to pay Yellowstone Club expenses. Edra poured $16 million of her own money into the club, but she won’t dig any deeper, she said.

All Edra and Discovery Land Co. could do was postpone the financial train wreck by a matter of weeks. Credit Suisse’s attorney alleged that Edra, Discovery, and CrossHarbor had actually been working in league to come up with a plan that would enable CrossHarbor to gain control while potentially leaving Credit Suisse out in the cold.

All the parties want the exclusive Bozeman-area club to remain open — because if it closes, it’s simply a collection of over-priced second homes. But investors and lenders often play a game of chicken in this type of situation, using the threat of closure to vie for position.

But it was a game that had no resolution on Wednesday, because nobody had given Judge Kirscher a final draft of the proposed order, and he wasn’t about to put his signature to a work-in-progress. The hearing will continue on Thursday, which under the judge’s calendar will allow the parties only 12 days to come up with a plan for when the Credit Suisse deal runs out, if it’s even OK’d.

Then, unless some other plan materializes, the richest club in the West will be broke again.

About Robert Struckman

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14 comments

  1. A number of members of the bankrupt club are/or were executives of Goldman Sachs, Morgan Stanley and other major financial institutions. Although some I have met have morals and ethics if their history is researched some may not. I can only wonder how much stock these guys have in those companies and how much of our tax dollars are to prop up their sagging investments.
    Another interesting fact is Hank Greenberg’s son who had a trophy home built in the Big Easy up there stiffed local contractors 580K until a court ordered payment some 18 months later. Why is it the elite rich are not prosecuted for their behaviors. If they spent some time behind bars they might think twice.
    I think it is time to take back America from the scum who have destroyed our financial markets as of late!

  2. I think that the most interesting point here is that this article states that there are 521 employees of the Yellowstone Club with only 360 members! That’s nearly 1.5 employees for every member! No surprise that there’s no more money.

    With the Club being privately controlled by Tim, then Edra Blixseth, it would be in the member’s best interest to collectively buy the place out, and establish a board of directors. The only way the place can continue is to run it like a REAL BUSINESS.

    You can’t just throw money at a problem this large. The warning signs for the Yellowstone Club were blatantly and repeatedly ignored by the top brass. If I were a member, I’d be pissed. I’d also want guarantees that this will never happen again.

    As for the “Club Member’s” comments… I’ve personally met many YC members, and they are for the most part had-working, honest family-people who just want somewhere to escape to – somewhere where life isn’t so hectic. You have to understand that, while perhaps misplaced, the anger towards members is because we can’t just move back to our “first” home when we’re laid off and broke.

    We don’t have the same financial resources as you. When we lose our job we lose the ability to make our car payment. We lose our family’s health benefits. We can’t make rent on the 2 bedroom condo that 5 of us live in. I know employees who’ve spent 8 years working with and for the Yellowstone Club – only to have the rug pulled completely out from underneath them.

  3. As far as I’m concerned it serves these people right. It’s about time they have to pay the fiddler. And anyone having continued doing business with these people should have made sure the check didn’t bounce before they did the work. There are many people out there in the same or worse predicaments. Millionaires, and billionaires get no sympathy from me. They have sure ruined a good mountain range.

  4. Hey PD… That 360 Members, includes family members as well… do your research.

  5. Club Member

    You are correct that people are generalizing about the Club Members. People are hurting and very scared and are attacking anything and anyone. We are talking about over 500 people in the valley loosing their jobs. Where are they going to find employment when Bozeman businesses are laying off people? Who will buy their homes if they need to move to find work? Its terrifying!
    Club Member don’t play this game, just get the other members together and make things right for the employees and vendors of the Yellowstone Club. I’m sure you are embarrassed by all this. You don’t deserve this nor do we.

  6. Club Member has a point. The members are not to blame. Lets all focus on the greed of Blixseth. Seize their assets and all is better. As members, we shall do what we can but in the end wehave already paid dearly and contributed dearly. Therefore the only way is for the courts, the members, the employees to stick together and do a classaction against Blixseth and seize his assets. Credit Suisse we need on this front. Speak up, the problem is only with Blixseth, Byrne and others trying to line their pockets.

  7. Privatepowder

    Now your talking! I’m sure you have paid dearly but if you fight for this and nail whoever is to blame for this mess the outcome can be so much more rewarding for all of you.

  8. I have to agree with Scott and Dave. My heart bleeds peanut butter for you. HA! You asked for it, you got it. now deal with it. Don’t expect any sympathy from a LOT of us Natives. You can go to some other state and ruin their Mountain Range. My Dad was Foreman of the B-K, what is now Lone Mountain Ranch, in the ’40’s. It is a sad sight to see all these energey defficiant homes going up up there. And the Bathroom in one of those houses uses more energy and water in one use, than our entire home does for 6 months at least. It wouldn’t bother me a bit if the entire Yellowstone club turned into a Ghost Town. My Nephew, at least, got done and paid for the work he did up there, and was smart enough to not go back. The ‘boom’ development that went bust my o my. Not like that doesn’t happen to REALLY hard working folks all the time. Didn’t bother any of you ‘millionaires’ when it hits the little guy so why should we give a rat’s behind when it hits the ‘elite’?

  9. Editor’s Note: This thread has been edited to remove personal attacks, in accordance with our comment policy.

  10. A couple points of clarification. With 360 memberships, there is usually an additional 3.2 users per membership, i.e., husband, wife, kids, family, guests, etc. An employee base of 521 is not full time or full time equivalents. In fact, to run a club of that size and complexity, 521 is a usual number.

  11. I’m a former employee of the club and can tell you from very first hand experience that none of this comes as a surprise to me at all. The club had no budget accountability whatsoever. I was responsible for ordering very expensive products and had a bottomless budget. The extravagance was INSANE. Nothing except the very best was purchased. I’m not against people having nice things and I’m not against the club’s members. However, the fancy lodge, which I hear has yet to be finished, was being filled with the finest things that money could buy. It was like it was being fit for a queen – no kidding. This is where the club’s management went wrong.

    If you took a random survey of members and asked them whether it was important for them to have 3 hour lunches on the finest china, I guarantee a large majority would have answered no. BUT, the club’s management insisted on the best. NOTHING was too good for Edra and Tim. I left the club because seeing this go on on a day to day basis was very saddening. I really enjoyed many of the club’s members and employees and was paid well for the 2 years that I worked there. This is a problem of mismanagement by the higher-ups, beginning with Tim and Edra. Unfortunately, they were so out of touch with reality that they let this happen. They could have asked any of their lowly hourly employees if the club was eventually going to run out of money and I guarantee most of them would have said yes. But once again, who were WE to say anything. Tim and Edra are the ones with the “big brains” and big pocketbooks. Let me tell you, this has been a long time coming and was an absolutely preventable situation. That’s the real sad part here. The members were being taken for a ride. And the employees were just trying to make a living. The Blixseth’s were trying to create an empire for the rich and famous. How sad.

    In addition to the many people their mismanagement has affected, the environment has been ravaged as well. I don’t know how much money, time, effort, etc. that was wasted on building the golf course on the side of a mountain that gets about 3 usable months a year, but I’m sure it’s a lot! I love Tom Weiskopf and his design was beautiful, but the club should have never built that golf course. You can’t golf in the snow and rain! Any idiot knows that. I heard that members were lucky to be able to get a tee time. I thought that’s why they were members!

    I could go on and on and on, but I’ll save you the drama. Mostly, it was very sad to see the waste of EVERYTHING that happened there EVERYDAY. Brilliant work Tim and Edra!

  12. I am a vendor who has lost all financial security thanks to the YC and It’s deceit. I provided a contractual service to the club and because it was a service I am not even able to file a lien. I have lost close to $28,000 in a start up business and was left with personal and business debts well beyond my means. I am on the brink of losing one of those overly inflated condos that most of us in the Bozeman area are living in. I worked up there for several seasons before starting my own busines and CT is absolutely right in the fact that the overspending was apparent to nearly every employee in every department.

    What disapoints me the most is knowing that I may end up in bankruptcy, with out a home, and the only comment in this thread from any members has the sole purpose of defending their image in this valley. I know that most members did not intend for anyone to end up getting hurt by the opportunities they thought the YC was providing. What members must understand is that there will obviously be some animosity towards them when I know for a fact that Tim, Edra and others will not be worrying about how they are going to feed themselves in the coming weeks. As for the Member’s comment I would pray that you never provide another community with the opportunity to lose millions of dollars, that was earned through hard work, to people with the kind of wealth we could only imagine. The mess that the YC has created will be felt in this community for a long time and people will not forget how they have been exploited so that the Blixseths and other jetsetters could continue to impress their cronies with mega wealth.

  13. My brother used to work at the YC Club 6 years ago. I emailed him one of first articles about the club going bankrupt. His reply back to me was – “I knew this would happen because of all the wasteful spending Tim Blixseth did”

  14. Wow – how many German YC followers are there? Can someone translate?