Friday, May 15, 2009


A couple of months ago, I wrote about the craziness in the Yellowstone Club bankruptcy. I suggested that readers follow it because it promised to be entertaining. Well the bankruptcy is coming to a head. Today began the hearing to sell the club to either an entity of one of the members or to Tim Blixseth and Credit Suisse which loaned $375 million to the former owners Tim Blixseth and his wife, (they are now divorced, she got the club, the club filed for bankruptcy, she filed for divorce and he is now trying to buy the club back).

Greg LeMond sued the club two years ago for $38 million. He won the suit and was paid around $25 million. He has sued for the remaining $13 million. Now the club has sued to get the $25 million back as a fraudulent conveyance. I hope he didn't lose the money in the market, he may have to give it back.

Then with all this in the backdrop, the bankruptcy judge, citing "naked greed", effectively invalidated Credit Suisse's first liens on the club. The judge was so incensed over how Credit Suisse went about making the loan, he equitable subordinated Credit Suisse. This means that Credit Suisse no longer has the recovery rights of a secured lender. Instead it has the recovery rights of an equity holder. This is a very drastic remedy and extremely rare in my experience. It is even rarer in this case because usually equitable subordination is reserved for lenders that exert undue influence on running the operations of the company. I am not sure the logic hold. But there you have it.

Perhaps the judge sensed this. He indicated he reviewed the case law and decided it acted appropriately. Furthermore, he gave Credit Suisse back certain rights so that he effectively just put the unsecured creditors (mostly locals) ahead of Credit Suisse. This enables Credit Suisse to still "credit bid" its secured debt to buy the club with Blixseth. I know, 'what is credit bid?' This is where a bank or banks with a first lien go to the auction and instead of bidding cash, they bid the value of their loans which must be repaid first.

Once again, this is a fun matter to follow. Perhaps the strategy is to have all the craziness so that the movie rights will be able to boost the ultimate recoveries. At this rate, it is moving towards a Will Ferrell movie.

Cheers, Mike

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