MISSOULA – All four sides in the federal bankruptcy trial for the ritzy Yellowstone Club on Friday applied their own spin to numbers presented as evidence of the resort’s financial health prior to a $375 million loan.
The vacation club for the ultra-rich declared bankruptcy in November, a few months after Edra Blixseth took over its control as part of a divorce settlement with her former husband, Tim Blixseth.
The Blixseths built the luxury club in the late 90s, and its elite membership — now facing a loss of $88 million — came to include the likes of Dan Quayle and Bill Gates.
A group of creditors contend the bankruptcy was primed by a fraudulent $375 million loan made to the club by Credit Suisse in September 2005, when Tim was still the owner.
“I have never seen a real estate loan transaction where you have a value greater than a million that does not have a market value appraisal,” testified David Abshier, an expert on risk management called by the creditors for Friday’s hearing. “It’s inconsistent with industry standards, it’s inconsistent with the law of the land.”
Since Credit Suisse arranged the loan through a Cayman Islands’ bank, an appraisal using fair market value was not required as it would have been in the United States.
The Yellowstone Club loan was one of at least five made by Credit Suisse to posh resorts after 2004, all of which are now in default or have declared bankruptcy, Abshier said.
In its cross-examination, Credit Suisse called into question Abshier’s expertise about such high-end development loans and his assumptions.
“Just because you have nonstandard terms does not mean anyone has necessarily been harmed,” said Credit Suisse attorney Edward Meehan.
Credit Suisse has also emphasized that as of August 2008, when liability for the loan was transferred to Edra Blixseth, the club was able to pay down the loan by about $68 million.
Most of the money from the 2005 loan was later transferred into private accounts and used to payoff debts on luxury estates and planes for the club’s divorced founders, the Blixseths.
The current Chapter 11 bankruptcy trial pits the former couple against each other, along with a battalion of lawyers representing their interests, those of a creditors’ committee seeking debt repayment, and Credit Suisse.
Witnesses testifying Friday said the Yellowstone Club was struggling with cash flow problems as early as 2005.
“More often than not in my tenure at the club we were not current on our payables,” said Moses Moore, senior accountant since 2005 for Yellowstone Development.
Moore, who took over as controller for the club in 2006, said they did not start producing monthly financial reports until the first quarter of 2007. But he testified that at any given time well over 100 vendors were waiting for past-due payments from the club.
“The club was burning between $25 and $30 million worth of cash a year,” said Charles Foster, a financial consultant for the debtors. Between the end of 2005 and the end of 2007, Foster said, the resort’s cash, or cash equivalents, fell from $128 million to $5 million.
Joe Grant, an attorney for Tim Blixseth, said the plummet in cash flow was triggered by a failed deal to sell the club to Boston-based Crossharbor Capital Partners and by the 2008 divorce proceedings — both of which led to a freeze on lot sales.
Tim Blixseth has accused his former wife of colluding with Crossharbor’s managing partner, Sam Byrne, to “prepackage” the resort’s bankruptcy so Byrne could later pick up the club at a bargain price.
Byrne last year sought to buy the club for $470 million, but he is now offering $100 million as a starting price in an auction scheduled for May 13.