Yellowstone Residence Club
It appears that the Yellowstone luxury residence club in Montana has had a stay of execution. In December, a federal judge gave approval for a $20 million interim loan to see the club through the winter season, with the hope that a buyer could eventually be found this year. This went completely against the wishes of the primary lender, Credit Suisse, who hold the primary lien, and may in fact have set a dangerous legal precedent by over-riding that lien. Either way, we can all look forward to some entertaining legal battles this year. Please excuse me if I get lost in the tortuous maze of lending, but some quick background is in order -
Yellowstone filed for chapter 11 bankruptcy in November, citing “tight markets,” as the primary issue. This turned out to be stretching the truth a little. The primary reason chapter 11 was filed was to protect themselves when the club failed to pay the final $13 million of a $39.5 million settlement after a law suit bought by Tour de France winner Greg Lemond was successful. Lemond accused the owner of the club, Timothy Blixseth, of borrowing hundreds of millions of dollars from the club without collateral and demanded his investment back.
At this point, the club owed some $343 million, the bulk of which was owed to Credit Suisse, and much of which seems to have evaporated and found its way into a private company owned by Mr. Blixseth. To complicate matters slightly, Mr. Blixeth and his wife also divorced rather messily and the Yellowstone club is now in Ms. Blixeth’s name, while other assets such a Mexican ranch valued at $30 million are in Mr. Blixeth’s name. Certainly the money was not used for it’s intended purpouse which was to build another 450 houses and an ice rink.
Later on that month, Federal judge Ralph B. Kirschner allowed an interim loan of $4.5 million to be arranged, which allowed the club to trade through the first two weeks of December. Judge Kirschner stated at the time that there “appeared to be adequate wealth,” amongst the club’s members for a bailout.
This is where it gets complicated. The same judge has now allowed a $20 million interim loan from CrossHarbor Capital partners, a Boston-based investment company, along with another $5 million loan from club members. Credit Suisse objected to this loan as it apparently now gives CrossHarbor first lien on the property, over-riding Credit Suisse’s charge. In a strange quirk of fate, it just so happens that one of the principals of CrossHarbor, Sam Byrne, is also a club member and owner/developer of part of the club’s property.
By another strange quirk of fate, it turns out that CrossHarbor had also lent Ms. Blixseth $35 million during her divorce proceedings to enable her to buy out Mr. Blixeth. This loan is secured by another property in Palm Springs, Porcupine Creek. Oddly enough, this loan is also in default, with creditors and vendors claiming not to have been paid for some weeks, although no legal proceedings have begun as yet.
The co-incidences do seem to be piling up – In yet another strange quirk of fate, it just so happens that the judge in question also happens to be an expert on valuing European Estates, and decided that Ms. Blixeth should be allowed to use yet another property as collateral for the CrossHarbor loan – Chateau de Parchville, a 1,000+ acre estate in Ile de France, outside Paris. Although the estate is not directly owned by Ms. Blixeth, but rather through a convoluted chain of shell companies ending at Blixeth Group Inc.
Chateau de Parchville
With sales of luxury property drying up around the world, and no one in their right mind attempting a valuation until they have seen the cash, judge Kirschner is apparently satisfied that this estate will provide enough collateral to satisfy the CrossHarbor loan, leaving Credit Suisse fully covered. Despite the fact that this estate has been on the market for some time and a sale fell through just a few months ago. Valuing a property priced in Euros in Dollars is always a tricky proposition, and I can see this one coming to market as the bargain of the century later on in the year. Judge Kirschner promises to watch the proceedings carefully………
The last in the string of co-incidences is that the only potential buyer on the horizon happens to be……. CrossHarbor Capital.
To make matters worse, Credit Suisse have also sold on part of the loan to undisclosed parties, and were unable to come up with an alternative financing deal.
Credit Suisse seem to be in all sorts of trouble at the moment, and they are doing a fine job of dispelling the myth that Swiss bankers are died-in-the-wool, never take an unwarranted risk sort of bankers. Not only are they heavily exposed to the Yellowstone club, they are also on the hook for $262 million loaned to the Tamarack ski resort in Idaho, which has a snowball in hell’s chance of avoiding insolvency. They have just off-loaded part of their asset management business to Aberdeen Asset Management in an all-share deal worth up to £250m. The UK fund manager will acquire £40 billion of managed assets in Europe, the US and Asia-Pacific. Aberdeen will give Credit Suisse a stake in the UK asset management company of up to 24.97%, worth £250m based on its closing share price on December 30, dependent on the revenues of the businesses being sold when the deal completes at the end of June, 2009. Several former brokers at Credit Suisse have already been indicted over investments in auction-rate securities, they have shed thousands of staff, and been forced to recapitalize heavily by raising $9 billion from Qatar and Abu Dhabi.
