In a scathing decision released this week, Judge Ralph B. Kirscher rules that Yellowstone Club founder Tim Blixseth’s dealings caused the resort’s bankruptcy. But, lender Credit Suisse doesn’t get off scot free either.
Federal Bankruptcy Judge Ralph B. Kirscher did not mince many words in a decision released this week in the Yellowstone Club bankruptcy case: Tim Blixseth’s “pattern of self-dealing,” is what ultimately led to the crash of the exclusive Montana resort.
But, that doesn’t mean he’ll be on the hook for all the club’s debts. Some, but not all. And, the club’s lender, Credit Suisse, whose loan was at the center of the long, brutal battle over the club’s finances, was no saint either.
A large issue in the resort’s bankruptcy case has been the $375 million loan from Credit Suisse that quickly evaporated after it closed. Not being able to pay that loan back was the crux of the resort’s bankruptcy filing in fall of 2008. The club has since emerged from bankruptcy under new ownership.
Blixseth was accused of pocketing the Credit Suisse loan for private jets and other lavish purchases and the bank was charged with being irresponsible, flippant even, in making the loan. At one point during the trial, it came out that the fees for the loan were worked out on a coin toss. One of the club’s attorney’s Troy Greenfield put it this way last spring: ““The corporate greed of Credit Suisse and Mr. Blixseth’s sense of entitlement” created a toxic combination.
And in fact, Kirscher’s decision found that, “Contrary to Blixseth’s arguments, the Credit Suisse loan was created so that resort owners, such as Blixseth, could extract large distributions from their development projects, without the need for any personal guarantee. Thus, the overall purpose of the loan was not for development of the Yellowstone Club, but instead, the purpose was to permit Blixseth to take money out of the Yellowstone Club and in fact, the record shows that very little, if any, of the Credit Suisse loan proceeds were used to fund development and construction at the Yellowstone Club.”
The Credit Suisse part of the saga points to the larger story playing out beyond the Yellowstone Club: Large developments were popping up across the region and the lending market was loose. Then, the high-end market everyone was betting on crashed. Credit Suisse made similar loans to a number of other projects that soon went bankrupt, including Promontory in Utah, Tamarack Resort in Idaho, Lake Las Vegas in Nevada, and Ginn Resorts in Florida.
In his Yellowstone Club decision, Kirscher wrote: “In this case, Credit Suisse and the Prepetition Lenders are just as a culpable as Blixseth,” wrote Kirscher. He went on, “If Credit Suisse had wanted to go after Blixseth in the event of a default, it should have included such provision in the Credit Agreement. This it did not do… Blixseth and Credit Suisse have done a lot of finger pointing in this case, but in the end, their conduct prompted Debtors’ bankruptcies.”
As for Blixseth’s claims that the bankruptcy was caused by early litigation from Greg LeMond, the management of the club under his ex-wife Edra or a fallen-through deal with Sam Byrne and CrossHarbor Capital, Kirscher called hooey on all of them.
“Blixseth blames theDebtors’ downfall on the lawsuit filed by the LeMond Plaintiffs, the alleged conspiracy between Edra and Byrne, and Byrne’s failure to follow through with purchase of the Yellowstone Club in 2008. Given the evidence, Blixseth’s arguments are without support,” he wrote.
Attorneys tell Matthew Brown of the Associated Press that Blixseth is likely to have to pay up for $20-65 million of the club’s debt. The club’s total debt still looming is estimated at more than $200 million.
