In a ruling that averts a possible shut-down of the bankrupt Yellowstone Club, a federal judge on Friday gave final approval to a $20 million interim loan for the club from the Boston-based investment firm CrossHarbor Capital Partners — despite the vehement objections of primary lender Credit Suisse.
The ruling from U.S. Bankruptcy Court Judge Ralph B. Kirscher assures that the club can operate through the winter season and paves the way for the eventual sale of the property. But what the club is actually worth — and whether it’s anywhere near enough to pay off the $309 million owed to Credit Suisse and tens of millions owed to tradesmen and other creditors — remains very much in question.
“I’m extremely happy that we’ll be able to tell members and employees that we’ll be open for the season,” said club owner Edra Blixseth, who gained control of the private ski-and-golf resort as part of her recent divorce settlement with Tim Blixseth.
Sam Byrne, a principal at CrossHarbor who is both a club member and the owner and developer of parts of the club property, expressed a similar sentiment: “I’m glad the club is staying open.”
Credit Suisse, which is desperately trying to salvage a series of ill-conceived resort loans around the West, had tried to block the CrossHarbor financing on the grounds that it did not provide “adequate protection” for Credit Suisse and the bondholders to whom it sold the debt. But its position was severely undermined when it failed two weeks ago to come up with the money for its own interim financing plan.
Mark Chehi, an attorney with the corporate law firm Skadden Arps and the lead lawyer for Credit Suisse, indicated that the bank might appeal the ruling. Any appeal, however, would not be aimed at blocking the $20 million financing itself, which (with an additional $5 million in member payments) will only carry the club through the winter anyway. Rather, the bank and others are concerned about the precedent the ruling could set, as it is highly unusual for a secured lender to lose its “first lien” position on property in connection with a Chapter 11 bankruptcy.
Testimony in the two-day hearing focused in part on Credit Suisse’s contention that there had been inappropriate collusion among CrossHarbor, Edra Blixseth, and Discovery Land Co., which has been retained to manage the property. While CrossHarbor, Blixseth and Discovery were clearly working on plans to salvage the club prior to the November bankruptcy filing, the judge appeared to find little merit to the claim that CrossHarbor had Edra Blixseth “over a barrel” and was thus able to pressure her into supporting its plan. CrossHarbor had lent Blixseth $35 million against her massive Palm Springs estate, called Porcupine Creek, to enable her to buy out Tim Blixseth in the divorce.
(That loan is now in default, though foreclosure proceedings have not begun. Employees and vendors at Porcupine Creek have told NewWest.Net that they have not been paid for many weeks; Edra Blixseth on Friday would neither confirm nor deny those allegations.)
CrossHarbor, which specializes in real estate and distressed debt, had attempted to buy the club from Tim Blixseth beginning last year, but the deal fell apart in the spring. CrossHarbor remains the most likely buyer for the club, which has about 300 members, including celebrities and billionaires such as Microsoft founder Bill Gates. Credit Suisse contended that CrossHarbor, by providing the $20 million “debtor in possession” financing and gaining first lien on the assets, would be able to manipulate the sale process to its benefit. Judge Kirscher, however, made it clear that he would control the sale as part of the bankruptcy proceedings.
The hearing also featured lengthy discussion of a French estate called Chateau de Farcheville, which was acquired by the Blixseths two years ago as part of a plan to develop a super-luxury vacation timeshare called Yellowstone World Club. The castle, as it was repeatedly referred to in the hearing, is not technically owned by the Yellowstone Club, but rather by a chain of shell entities that are ultimately controlled by Blixseth Group Inc., which in turn is now owned by Edra Blixseth. She pledged the castle, said to be the most expensive estate in Europe, as collateral for the CrossHarbor loan.
Edra Blixseth had planned to sell Farcheville earlier this year to salvage her and the club’s finances, but a deal to sell the property for about $60 million fell through this fall. What the property is really worth in today’s market is anyone’s guess, but the judge was apparently satisfied that it was likely worth more than $20 million and therefore provided some additional protection for Credit Suisse, since it would be the first source for repayment of the CrossHarbor loan.
The judge also focused on $275 million in promissory notes from Blixseth Group that are held as collateral by Credit Suisse. Those notes were created when the Blixseths took more than $200 million of the original $375 million Credit Suisse loan for various property purchases and their own personal spending. Future chapters of the Yellowstone Club drama are likely to focus on where all that money went, and whether those promissory notes are worth anything.