Resort for the Rich Faces Tough Times
November 24, 2008 - 1:27 PMRunning out of money may seem unlikely for a private resort whose members includes billionaire Bill Gates and Los Angeles Dodgers owner Frank McCourt, but that's the fate that will befall the ultra-exclusive Yellowstone Club this week unless it can line up another loan.
Less than two years ago the club's owners were pursuing ambitious plans that they said included the world's most expensive home, a $155 million, 53,000-square-foot behemoth complete with heated driveway. That project was never built. Now the Yellowstone Club is one of at least four high-end resorts that have sought bankruptcy protection in recent months.
Like the others, the Yellowstone Club was heavily leveraged, meaning huge loans were taken out to develop the ski hill, golf course and multimillion dollar mountainside condominiums on 13,600 acres near Yellowstone National Park.
When the credit crisis hit, the money dried up. A $4.5 million interim loan recently arranged through Credit Suisse was only enough to keep the club going for three weeks, leaving members clamoring and hundreds of creditors owed at least $399 million jockeying to get their money back.
The descent into financial turmoil offers a stark example of how the nation's financial crisis has reached the playgrounds of the very rich - tripping them up in their own excess.
The Yellowstone Club was founded by billionaire Tim Blixseth and his former wife, Edra. She now controls it as part of their recent divorce settlement.
On Tuesday, Blixseth and her attorneys are scheduled to appear again in court before U.S. Bankruptcy Judge Ralph Kirscher. She's seeking a court order that would ward off the club's almost 700 creditors for at least 90 days, to restructure the massive debt and figure out how to stay open. The club has only enough cash to operate through Friday.
"We're working feverishly to restructure and come up with financing," said Edra Blixseth's spokesman, Bill Keegan.
Much of the club's real estate holdings have been mortgaged and the operation has multiple liens against it. Even before filing for bankruptcy protection on Nov. 10, Blixseth sought a $35 million loan to keep the operation afloat.
Blixseth also faces pressure from a two-year-old lawsuit filed by former club members, including cycling star Greg LeMond. The club still owes $13 million out of $39.5 million to settle charges that LeMond and others were shortchanged in a business deal. Last week, LeMond's attorneys asked a state judge to order payment - a bid to get to the front of the long line of creditors.
Documents filed in the bankruptcy proceedings reveal the degree of extravagance sunk into the resort. Dozens of pages detailing club assets list hundreds of millions of dollars in real estate, luxury cars and other accouterments of the very rich. They range from a $32 million Mexican estate, to $306,508 in imported rugs and $70,036 worth of Christmas decorations.
At a Nov. 13 bankruptcy hearing, Judge Kirscher commented that there was "probably adequate wealth" for a bailout among the club's estimated 340 members. He may have underestimated the level of animosity among some who have accused the Blixseths of diverting club funds for their own jet-setting lifestyle.
Both Blixseths now deny treating the club's riches as a personal fortune, although Edra made similar accusations during their divorce.
Now members are reviving questions over whether a $375 million Credit Suisse loan taken out in 2005 actually went to the club. Court testimony earlier this year in the LeMond suit showed $209 million of that loan was later signed over to BGI, Inc., a corporate entity then under control of Tim Blixseth.
Concerns over the money trail have stoked a rebellion in the club membership. A group calling itself the Ad Hoc Committee of Yellowstone Club Members opposes Edra Blixseth's efforts to arrange new financing.
To join the club, each member put down a $250,000 deposit and bought a piece of property. Earlier this year, the asking prices for Yellowstone Club building lots were up to $10 million apiece.
"As each day goes by with more uncertainty and decreasing member support, the considerable risk of the loss (of) value of the estates continues to grow," Ad Hoc Committee attorneys wrote in court documents filed Friday.
Meanwhile, at least three other high-end resorts that received loans through Credit Suisse also are battling bankruptcy. Those are the Promontory Ranch Club near Park City, Utah; Idaho's Tamarack Resort; and Nevada's Lake Las Vegas golf resort.
Credit Suisse spokesman Duncan King said that's not because of poor loan decisions at the firm, but because of broader economic problems.
"You have plenty of other areas (of the economy) that are losing money, but this one is particularly hard-hit," King said.
The pain already is trickling down in the Yellowstone region. Court filings show the club owes back wages and months worth of payments to hundreds of local employees and to contractors from across Montana.
In the community of Laurel near Billings, Ace Electric owner Dwight Fischer said he laid off six of his 60 or so employees and stopped work on the resort's lodge when its bill topped $335,000.
"The last six months have been pretty tough," Fischer said. "The lifestyle these people are accustomed to, the money is all relative. But they can't afford to let it go completely to hell."
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