Yellowstone Resort Loan Ruled Predatory

Well, this one tops the drama at Yellowstone resort off nicely. I had a feeling something along these lines was in the pipeline when Judge Ralph Kirscher decided he was an expert on valuing European Estates the last time this fiasco went to court, and allowed a $20 million interim loan from Crossharbor Capital, secured by a Chateau in France owned by Edra Blixeth, ex co-owner with her now ex-husband Timothy Blixeth. Crossharbour Capital had previously lent Ms. Blixeth the necessary funds to fight her divorce battle and win control of the club.

According to AP, said judge ruled on Tuesday that a $375 million loan Credit Suisse made to the Yellowstone club in Montana was predatory and should be subordinated to other debts.

Judge Ralph Kirscher wrote in a partial and interim order that the Swiss bank “lined its pockets” on the backs of the Yellowstone Club’s creditors, and that it devised a scheme to encourage developers of high-end residential resorts to borrow large sums without regard for their ability to repay.

Kirscher said Credit Suisse’s actions “were so far overreaching and self-serving that they shocked the conscience of the Court.”

Under the order, Credit Suisse’s lien for $232 million in repayment on the 2005 loan will be subordinated to the claims of other creditors. Kirscher did not say when he would issue a final decision.

Kirscher found that Credit Suisse authorized club owner Tim Blixseth to use $209 million of the loan to pay off existing debts on luxury estates, including Porcupine Creek, a huge estate near Palm Springs, Calif., with a 30,000-square-foot house and a private championship golf course. The resort filed for bankruptcy protection in November, after much shenanigans.

A Credit Suisse official testified last week that the loan was legitimate and there was no way the club’s financial demise could have been foreseen, especially considering it was valued at about $470 million even into 2008.
Credit Suisse received $7.5 million for arranging the loan.

“The only plausible explanation for Credit Suisse’s actions is that it was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may,” Kirscher writes.

According to the ruling, Credit Suisse also made loans at least five other similar projects that have since failed or declared bankruptcy, including the Tamarack Resort in Idaho.

We have been following this one for some time now – Yellowstone club drama. It is all a little too tortuous to repeat, but well worth a read. The club, which has debts of more than $400 million, (most of which was spent on Bentleys and luxury jets apparently) is scheduled to be sold at auction today. Mr. Blixeth and Crossharbor Capital partners seem the only two interested parties, although it will be entertaining if Credit Suisse can come up with a third combatant.