BILLINGS – The financial unraveling of the ultra-exclusive Yellowstone Club traces back more than three years, to a $375 million loan secured under club founder Tim Blixseth.
On the same day the millionaires-only club obtained that loan through Credit Suisse, it transferred at least $271 million to a Blixseth-owned corporate entity, BGI. The loan specified that most of that money could be used for purposes unrelated to the club — and it appears Blixseth did just that.
More than $150 million was soon deposited in various banks under the names of Tim Blixseth and his ex-wife, Edra Blixseth. At least $15 million was used to pay off various Blixseth-owned houses and properties. And almost $4 million went to pay off a pair of airplanes owned by a Blixseth company, according to court records in a 2006 lawsuit against the club and a copy of the loan documents obtained by The Associated Press.
Fast forward to 2009 and the question of where the money went has emerged as a pivotal issue in the Yellowstone Club’s high-profile Chapter 11 bankruptcy.
The ritzy club, which counts billionaire Bill Gates and former Senate Majority Leader Bill Frist of Tennessee among its members, is mired in almost $400 million in debt. That includes $307 million still owed on the 2005 Credit Suisse loan.
Declining real estate markets and Wall Street’s woes are at least partly to blame.
Attempts to secure financing for long-delayed improvements at the mountain resort got tripped up by tight credit markets. And it’s been months since any newcomers ponied up the $300,000 new membership deposit. Members also must buy property on the club’s 13,600 acres, where building lots typically cost millions.
But long before the economy’s broader troubles hit the swank mountain retreat, its finances had been stretched thin by the Credit Suisse loan.
U.S. Bankruptcy Judge Ralph Kirscher has scheduled a hearing Tuesday on why the club has never attempted to collect on the money transferred to Tim Blixseth’s BGI.
Both the club and BGI are now controlled by Edra Blixseth, under the terms of the couple’s August 2008 divorce settlement.
In an interview with The Associated Press, Edra Blixseth rejected any assertion that the $271 million in loans went to her benefit.
“Even if it was under my name, I had nothing to do with opening any accounts. I had nothing to do with where the money was transferred. Tim was totally in charge,” she said Monday.
She described herself as being “frozen out” of the club’s day-to-day operations for much of the last two years and said her accountants were still trying to piece together the money trail to see if any of the missing money might be recovered.
Three weeks ago, the club belatedly hired a law firm to seek collection of the money.
Edra Blixseth said the club was now “doing forensics” to trace where the money went. “We’re having to piece it back together,” she said.
Tim Blixseth referred questions about the $271 million in loans to his attorney, Stephen Brown.
Brown said the loans — secured only by a series of two-page “promissory notes” and with no collateral to back them up — were no longer Tim Blixseth’s responsibility. As “corporate notes,” he said the promissory notes remained the obligation of BGI.
“He’s not involved in the (Tuesday) hearing because he’s not involved in the bankruptcy,” Brown said. “BGI was a company that went to her (Edra) in the divorce. He has no ownership of BGI anymore.”
Complicating the case is Brown’s dual role as chairman of the 11-person Unsecured Creditors Committee. That’s the court-approved entity charged with looking after the interests of the hundreds of companies and individuals owed money by the Yellowstone Club.
Such committees are often responsible for investigating any assets missing from entities that seek bankruptcy protection.
Brown’s Missoula law firm, Garlington, Lohn and Robinson, is one of the club’s largest creditors, with a $344,700 outstanding bill. But Brown’s position as chairman of the creditors committee has raised questions among other attorneys in the case, who see it as a potential conflict of interest given his service to Tim Blixseth.
Brown also served as counsel to the club on the $375 million Credit Suisse loan. He said he would recuse himself from any matters that collide with his role as Tim Blixseth’s attorney.
“That doesn’t mean that we were involved in every aspect of the business,” he said. “Yes, we have been Montana counsel for the Yellowstone Club on a lot of different issues over the years. People know that. It’s not a secret … It would be impossible to find someone on that committee who knew nothing about the Yellowstone Club.”
The promissory notes themselves, meanwhile, are in the possession of Credit Suisse.
Spokesman Duncan King acknowledged the firm was aware in 2005 that Blixseth intended to transfer the bulk of the funds to BGI, but declined further comment. He also declined to say whether the firm intends to pursue repayment on the money. That would require approval from Judge Kirscher since all of the club’s assets are frozen pending the bankruptcy case.
At a hearing in December, Kirscher pressed the Yellowstone Club’s chief restructuring officer, Ronald Greenspan, as to why he had not attempted to collect on the money.
Greenspan said that he had been told by Edra Blixseth that BGI did not have the capacity to make good on the loan.
“I don’t know that there’s any way to get that money,” he testified.