As Edra Blixseth and the Yellowstone Club return to a U.S. Bankruptcy Court on Tuesday, the central questions will not revolve around paying the club’s debts — but rather miring the club deeper in red ink.
The club’s lawyers filed a motion on Monday to ask U.S. Bankruptcy Judge Ralph B. Kirscher to OK a second emergency loan to keep the club operating while in bankruptcy.
Two weeks ago, the club where only the best would do didn’t have enough money for propane for heat, or the shuttle to move employees to and from nearby towns, much less enough cash to actually pay those employees, even for one more day.
That’s when the club filed for Chapter 11 bankruptcy in Montana court. Chapter 11 allows a business to remain open while it makes a plan to pay its debts. The filing came in the wake of an ugly divorce between Edra Blixseth and ex-husband Tim, allegations of large-scale financial impropriety and the collapse of the high-end real estate market as well as the credit markets that funded it.
After two days of testimony Judge Kirscher signed an order to allow international lender Credit Suisse to loan the club another $4.4 million to operate the club until the end of November, bringing the club’s debts to at least $365 million, according to court documents and testimony.
The club still lacks both cash and revenue, although several million dollars in annual dues from members will be collected in December, maybe enough money to run the luxurious-but-broke club for the better part of a month. Its vaunted membership includes billionaire Bill Gates, but in recent months new paying members have been hard to come by and the club’s high-priced lots haven’t snared buyers.
Most of the Yellowstone Club’s gargantuan debt — at least $311 million — is owed to Credit Suisse, which will offer another interim loan to the club, according to documents filed in court on Monday. Other creditors include the Boston-based hedge fund CrossHarbor Capital Partners, owed some $35 million by Edra for helping her to buy out her ex-husband’s interests in the club in August. CrossHarbor had also negotiated for more than a year to buy the club before stepping away.
Dozens of local contractors and others are also owed millions by the club, which has never consistently paid its bills, many who are familiar with business practices there say.
Another creditor is cycling great Greg LeMond, whose 2006 lawsuit against then-owner Tim Blixseth first began shedding light on the shady financial dealings at the club. LeMond’s suit alleges Blixseth funneled $207 million of the Credit Suisse loan into payments for himself and his family — somehow justified as revenue — funding a lifestyle of private jets and mansions. LeMond is owed about $13 million, the remainder of his legal settlement with the Blixseths.
With all these creditors, and no money or short-term prospect of any money, the bankruptcy court has become something of a testing ground, a place where a kind of contest rages to determine who will have enough money to take over the club and carry it through the nation’s economic downturn, and into a future when exclusivity and 10,000-square-foot, ski-in-ski-out cabins will again tempt the moneyed classes to buy lots and memberships.
None of this will make the club solvent in the short term, or answer the fundamental underlying question, as put by Jonathan Alter, lawyer for the members: “Where did all the money go?”
If no financial savior emerges, Edra Blixseth has made clear, the cash-poor club for the mega-rich will fold.