Yellowstone Club told to Speed up Bankruptcy Settlement

Yellowstone Club, the millionaires-only ski resort that emerged from bankruptcy only 10 months ago are embroiled in a dispute with its creditors who are claiming $286 million from its founder and former owner, Tim Blixseth.  The creditors claim that Blixseth stole millions of dollars from the club to purchase luxury real estate.  On the other hand, Blixseth claims that the club was victimized by his ex-wife Edra, new owner Sam Byrne and officials of finance company, Credit Suisse.  As a result, Sr. US bankruptcy judge John Peterson issued an order March 12 for all parties to settle their differences within 3 days starting May 5 in Butte.

In 2005, Credit Suisse had arranged for a $375 million loan to Blixseth but has since then been trying to have nothing to do with the legal claims by the creditors.  However, Judge Peterson’s order involves Credit Suisse also.  Nevertheless, as Judge Peterson is merely a mediator and not the actual judge presiding over the case, he has no authority to compel Credit Suisse to come to the negotiating table.  Credit Suisse themselves have not confirmed whether they will be attending the talks in May.

The presiding judge is US Bankruptcy judge Ralph Kirscher, who is overseeing over many of Yellowstone’s cases.  All parties involved in the disputed $286 million claim have submitted their final legal briefs to Judge Kirscher.

Records show that within days of handing over control of the exclusive club to his ex-wife in their 2008 divorce settlement, Blixseth began transferring hundreds of millions of dollars worth of assets to a trust in Las Vegas, Desert Ranch LLLP.  Blixseth acquired most of those luxury real estate properties through the $375 loan he obtained through Credit Suisse.  As such, the attorney for the creditors, Charles Hingle accused Blixseth of performing every step he took with complete intentionality knowing full well he was removing assets from Yellowstone to prevent them from being seized by creditors.

Judge Kirscher subsequently issued a restraining order preventing Blixseth from removing any assets from the Desert Ranch trust.

On the other hand, Blixseth’s lawyers have been making their case against Credit Suisse whom they deem as “the party who chiefly created this mess in the first place.”  Judge Kirscher had already penalized Credit Suisse for making a risky loan to Yellowstone which it knew could not be repaid.  This ruling moved Credit Suisse down the order in the repayment queue behind other creditors.

Sale of Bankrupt NHL Team Stalls

Ice Edge Holdings, a group of American and Canadian investors keen on the Phoenix Coyotes hockey team, have stalled in their efforts to buy the team.  An official close to the negotiations said one key element affecting the proposed sale is the team’s lease arrangement with the arena they play in, which is owned by the city of Glendale.

Last October, the Phoenix Coyotes sought Chapter 11 bankruptcy protection and was bought by the NHL for a sum of $140 million.  The NHL in turn is now negotiating to sell the team to Ice Edge.  The deal appeared to run into some hiccups which might be resolved with some changes to the Coyote’s lease on their arena,

Some of the changes to the lease arrangements sought after include allowing the team to impose parking charges at the arena, reducing the fees the Coyotes pay to the city of Glendale and giving the team more say and control over what happens on game days.

Ice Edge wants some of the Coyotes’ home games played in Saskatoon, Saskatchewan in Canada as they believe it would help increase revenue while keeping the team based in Arizona.  This, coupled with additional revenue from parking fees would augur well for the team, according to Ice Edge.

The NHL wants the selling price for the Coyotes to be between $140 and $160 million.  The final selling price might be influenced by the recent sale of another NHL team, the Tampa Bay Lightning which fetched $100 million.  Ice Edge believes that Phoenix holds greater potential for generating profits out of hockey than Tampa in Florida.

There have been many varied estimates of what the Phoenix Coyotes team is worth.  One private investment banker in Canada was quoted by the Toronto Globe and Mail as saying the Coyotes was worth only $50 million.  On the other hand, Forbes magazine prices the team at $138 million, the lowest among all the teams in the NHL.

The Coyotes have lost more than $300 million since 1996 when they moved to Phoenix from Winnipeg, Manitoba.  But this year, earnings seem to be picking up as the Coyotes put together a run of 8 consecutive games.  The team has also made the playoffs for the first time since 2002.  Their last home game against the Chicago Blackhawks was sold out and the team is in fourth place in the NHL.

ACORN Soon to be Bankrupt

The Association of Community Organizations for Reform Now or ACORN, the network of organizations that fight for social rights is on the brink of bankruptcy.  Over the last 6 months, the organization has lost 15 of its 30 chapters.  They have disbanded without any intention of reforming.  Some have gone on to form their own entity, such as the California and New York chapters which were two of the largest.  They have both pulled out of ACORN and taken on new names in forming their own groups.  The New York chapter is now known as New York Communities for Change.  Several other chapters have done likewise.

The Maryland chapter of ACORN was the one that hogged the limelight of late for all the wrong reasons.  In September last year, two conservative activists under the guise of a prostitute and a pimp, consulted with ACORN officials on tax matters.  In the course of their discussions, the officials allegedly advised one of the activists, James E. O’Keefe III on how to get away with avoiding taxes on his prostitution business while keeping it undercover.  No objections were raised on the illegal prostitution activities by the ACORN workers either.  Unknown to the ACORN workers, the conversations were secretly videotaped and when news of the tapes were revealed, the backlash was expectedly harsh.

As soon as the contents of the tapes broke out over the 24 hour cable TV news, the Census Bureau announced it would not work with ACORN for this year’s census, the IRS dropped ACORN from its Voluntary Income Tax Assistance Program and Congress voted to stop all grants to ACORN.  The organization lost virtually all its private donations and the federal government also quickly distanced itself.

But the video scandal was only the final straw that broke the camel’s back.  In the recent past, there have been many other scandals, only not as widely publicized.  In the summer of 2008, the organization was embroiled in its own internal dispute over the alleged embezzlement of funds by the brother of ACORN’s founder.  Then during the run-up to the 2008 Presidential elections, some ACORN chapters involved in the elections were alleged to have submitted voter application forms containing wrong information that would have affected Obama’s campaign at that time.

The housing affiliate of ACORN, although one of the organization’s most financed offshoots, has been badly hit.  It has now changed its name to Affordable Housing Centers of America that now runs 17 offices, down from 29 only a year ago.  Their annual budget now stands at $6 million; it was $24 million last year.

Lehman’s Story Prior to Bankruptcy

In a stunning expose, Anton Valukas, the court appointed investigator charged with probing the Lehman Brothers collapse, revealed that the investment bank had about $39 billion in encumbered cash.  This represented almost all of its $41 billion cash reserves.  The $39 billion was encumbered to a host of lenders that included Citigroup, JPMorgan Chase and Co and Bank of America Corp.

After the collapse of Bear Sterns Co, Lehman began to consider obligatory deposits and collaterals pledged to banks as cash, using these amounts in their talks with analysts and the authorities, many of whom were misled into believing Lehman was more liquid than it actually was.  One such party was Buckingham Research Group, who only 2 days before Lehman’s collapse on September 15, 2008 stated in their report that “Lehman remains well positioned in a ‘run on the bank scenario’” due to its perceived buffer of $42 billion to meet its demand for cash.  In reality only about $2 billion of this amount was readily available.

Valukas’ report states that there are possible grounds for taking Lehman officials to court for causing the company to file erroneous financial reports that clearly misrepresented the risks behind the company at that time.

Another area of misrepresentation was Lehman’s accounting methods that could have misled investors.  One example was the transactions that made $50 billion disappear from the books within half a year.  Another example was the company’s method of valuing real estate investments that avoided write-downs but instead focused on a project’s future prospects.

At the time of its bankruptcy filing, Lehman was the nation’s fourth-largest investment bank with estimated debts of $613 billion.  This included short term agreements to repurchase assets of $159 billion that made up almost 26% of total debts.

Lehman started their practice of using encumbered assets to inflate their cash in June 2008 when Citigroup required them to make a $2 billion deposit against trades that Citi was settling and clearing for Lehman.  About a week later, when JPMorgan requested $5 billion in the form of securities as part of revised margin requirements, Lehman did the same thing.  As time went on, Lehman continued to consider these amounts as liquid assets, knowing full well that the securities were pledged as collateral to JPMorgan and that a withdrawal of their deposit with Citigroup would jeopardize Citi’s willingness to settle and clear trades for them.

In August of 2008, the pattern continued when Lehman deposited $500 million as collaterl in the Bank of America to secure its daytime exposures on trades and again counted this as part of its cash pool “despite the fact that the collateral was subject to a security interest, was returnable to Lehman only on three days’ notice and was placed to ensure that Bank of America would continue its clearing operations,” according to the Valukas report.

Likewise, Lehman deposited more than $800 million with HSBC Holdings Plc and an undisclosed amount with JPMorgan in 2 accounts, again counting these amounts as readily available cash.

All these activities went unnoticed by the US Securities and Exchange Commission, the primary watchdog of the industry until the day before Lehman’s bankruptcy on September 15, 2008.  Lehman collapsed when its lenders pulled back making it the largest US bankruptcy ever.

Possible Bankruptcy for Blockbuster

Blockbuster Inc., the movie rental chain of companies, is teetering towards bankruptcy.  It has made a filing with the Securities and Exchange Commission recently.  In it, the movie rental company stated the possibility of it filing for Chapter 11 bankruptcy protection if it is unable to solve its cash flow problem soon which has hampered its ability to repay much of its debts.  The pressing cash flow problem was due to intense competition from other players in the industry.

In its financial year ended January 3, Blockbuster experienced an operational net loss of $558.2 million in 2009 after another loss of $374.1 million the year before.  Their $558.2 million loss also included a non-cash impairment charge of $369.2 million.  This is over and above its existing $1.15 billion impairment charges it has already taken since 2005.

Although revenue for 2009 exceeded that of the year before by $1.01 billion (in 2009 Blockbuster generated $5.07 billion whereas in 2008, it earned $4.06 billion in revenue), it still lost more in 2009 than in 2008.  Its net loss of $558.2 million represented a stockholders’ deficit of $2.93 per share in 2009, compared with a loss of $2.01 per share the year before.

Unsurprisingly, Blockbuster has had to compete with the emerging trends of new media and a brutal business cycle.  The Internet and various other media channels such as satellite cable TV have made the business environment much more difficult.  Blockbuster CEO Jim Keyes has admitted the challenges of balancing “the secular decline of a single channel with the ascension of emerging channels”.

In its bid to compete against other movie rental companies and draw a greater audience for its movies, Blockbuster intends to grow its by-mail movie rental services and expand its existing digital movie offerings through On Demand.

Blockbuster runs 337 stores in Florida in total and more than 50 stores in the Tampa Bay region.  To tap into a niche in Tampa, the movie rental company partnered up with the University of Tampa in providing Blockbuster Express DVD rental kiosk services on campus.  With this tie-up, which is the third of its kind with universities in Florida, Blockbuster is now actively competing in the kiosk-style rental system.

Two years ago, Blockbuster did attempt to buy the now defunct Circuit City Stores Inc., although the deal did fall through.  At that time, Circuit City said it did not believe Blockbuster could raise enough finances to seal the purchase.

In another development, Blockbuster declined to comment on rumors that it intended to sell off the European arm of the business.

Bankrupt Japanese Telco Needs Funds

Willcom Inc., Japan’s giant telecommunications and wireless company that has been under bankruptcy protection since last month, is needs as much as 137.8 billion yen or about $1.5 billion as part of its efforts to return the company to profitability.  The company plans to raise this huge amount through various means.  It has asked for about 114.5 billion yen of its debts to be forgiven and it will raise another 11.3 billion yen through the sale of shares in the company and that of another spinoff company and finally state backed Enterprise Turnaround Initiative Corp and selected banks will finance as much as 12 billion yen.

With this massive injection of funds, Willcom will be able to continue providing its wireless data services by acquiring new network systems and continue doing business in Japan.  In the process of its bankruptcy proceedings and restructuring, Willcom’s shareholders Carlyle Group of Washington D.C. and Kyocera Corp. will see its 220 billion investment in 2004 virtually wiped out.  At present, Carlyle Group, the world’s second-largest private equity company, owns about 60% of Wellcom whereas Kyocera Corp owns 30%.  The remaining 10% of the company is owned by the KDDI Corp.

The 11.3 billion sale of Willcom and another spinoff company’s shares will be made to Softbank Corp and Advantage Partners LLP.  This will result in the two companies owning a third each of the spinoff company,

Willcom’s bankruptcy is the biggest bankruptcy in Japan in terms of size of debt.  The company’s debts totaled 206 billion yen as of February 18.  This eclipsed the previous record of 120 billion yen of debts by Heisei Denden Co. in October 2005.  Two of Willcom’s biggest creditors are Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group, to whom Willcom owed about 17.6 billion each as of March 31 last year.

With its acquisition of Willcom shares, Softbank, another wireless service provider will have access to Willcom’s base stations, thus enabling it to speed up the transfer rate of its own networks.  Its subscriber base grew by about 1.7 million in 2009.  Softbank anticipates that this will give a significant boost to its earnings this year.  Willcom, on the other hand, lost about 6% of its subscribers since July 2007 and currently have only about 4.4 million users.

Lehman Investigator Spills the Beans on Bankruptcy

Anton Valukas, 66, was the chief investigator who scrutinized the now infamous Lehman Brothers Holdingsí $639 billion bankruptcy, the biggest financial failure in the history of the United States.  Spending a year and $38 million, he produced a meticulous 2,200 page report that goes in depth into revealing some amazing details such as whether JPMorgan Chase and Co. triggered Lehmanís bankruptcy, had Barclays PLC benefited from it or not and the role played by the US Federal Reserve in all this.

The New York bankruptcy court papers show that Valukasí report came as a result of interviewing more than 100 people, going through more than 10 million documents in addition to some 20 million pages of emails from Lehman.  It is not uncommon for investigators to encounter difficulty in persuading witnesses to come out into the open.  Many prefer to remain anonymous and keep their testimonies confidential.

But Valukas successfully negotiated with witnesses to do away with their right to confidentiality.  As such, he stated in a letter to Judge James Peck only 5 documents out of 3,158 documents referred to in his report are meant to be kept confidential.  These 5 documents only relate to a few pages of the report, which were redacted from the final version handed over to the judge.  It was Barclays PLC, the US Office of Thrift Supervision and CME Group, a futures and options exchange that requested the redactions.  The rest of the documents could be disclosed.

Valukas also rightfully denied Lehman access to his documents and witnesses while carrying on his investigations.

MGM Potential Bankrupt

Metro Goldwyn Meyer, one of the big guns in the entertainment industry, is considering a prepackaged bankruptcy arrangement with its creditors.  In the face of the recession, it is natural for the general public to scale down on its expenses on entertainment.  In addition, MGM’s only major release last year, a remake of the movie ‘Fame’, hardly made a ripple among movie goers.  To top things off, the movie producer has a $4 billion debt it needs to reorganize, the result of a $5 billion leveraged buyout it carried out in 2004.

Last fall, MGM was put up for sale by its owners but its asking price was way above the $1.5 billion potential buyers were willing to pay.  Later this month there will be another round of bids, but despite the carrot of the rights to about 4,000 movie titles including the entire James Bond series and The Hobbit, there does not appear to be a solution to the impasse.

The solution may lie in a prearranged bankruptcy that would involve the movie maker’s creditors taking over the studio in exchange for a cancellation of its debts.  MGM’s advisors in this matter include the boutique investment bank Moelis and Company and the legal firm Skadden, Arps, Slate, Meagher and Flom, who have been working on coming up with an amicable solution for months.  In addition, MGM also hired Stephen F. Cooper, a renowned restructuring expert to helm the company.

March 31 is a significant deadline in MGM’s books because that is when an agreement with its creditors expires, after which the movie maker has to pay up its dues.  But the studio is likely to seek an extension to this deadline.  Coupled with this is the maturity of yet another debt, a $250 million revolving credit facility that takes place early next month.

In any event, whether or not to go for the prearranged bankruptcy will be decided on only after March 31.  MGM has declined to issue an official confirmation or denial this matter.  They have a group of creditors that total about 140, led by JP Morgan Chase which makes appeasing them hardly an easy matter.  Furthermore, doubts have arisen over the future profitability of the well-known movie maker due to it poor performances in recent times.  This year, MGM’s anticipated releases will include the comedies ‘Hot Tub Time Machine’ and ‘The Zookeeper’.  Will any of these prove to be MGM’s savior?  That’s anybody’s guess.

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    Cadillac Keeps Away from Bankrupt GM

    In a case of child leaving the parent, Cadillac has taken measures to distance itself from its parent company, GM in the eyes of the public by removing the GM brand from its dealerships and marketing strategies, changing its email address and pulling out from GM events such as the discount Red Tag sale (which Cadillac contends cheapens their product name).  This move is so that no negative perceptions will be attached to it arising from GM’s bankruptcy saga.  Last year, the government had to bail out GM with a hefty $50 billion package.

    On its part, Cadillac has churned out models of high quality in its attempt to beat the recession and it understandably does not want its credibility jeopardized by GM’s bankruptcy as happened in 2009 when GM’s bankruptcy coupled with the recession contributed to a significant 32% drop in Cadillac sales in the US.  The improved sales thus far this year of a 14% rise in sales pales in comparison with the performances of GM’s four other brands and was even less than half of the 31% increase in sales achieved by GM as a whole.

    Cadillac’s latest move is totally contrary to its stand five years ago when it actively aligned itself with the GM image, prominently placing the silver GM logo on all its automobiles.  But due to its poor performance last year, Cadillac is taking no chances this year.  The last time annual sales showed an increase was in 2005 when it posted a modest 0.3% increase in sales when 235,002 units were sold.  GM has said that it plans to sell 140,000 Cadillac automobiles this year, an increase of 28% from last year.

    Pulling out from the year end Red Tag cheap sale, Cadillac will run its own marketing campaigns, likely promoting leasing options which have been traditionally more popular with buyers of luxury cars.  Its newest advertising campaign is due to kick off later this month and its newest model is set to be unveiled at the New York International Auto Show on March 31.

    GM, on the other hand, is working hard to get rid of its ‘dependant’ image, reflected by its nickname “Government Motors” coined by critics arising from its massive bailout.  In December, it began repaying $6.7 billion to the government.  This month, GM’s CEO Ed Whiteacre revamped the sales and marketing team (for the second time this year).  It’ll be a long road to recovery but GM and Cadillac appear to be on the right track.

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    Casino Owner Files Chapter 11 Bankruptcy

    Centaur LLC, the parent company of Hoosier Park Casino and horse track in Anderson, Indiana and Fortune Valley Hotel and Casino in Central City, Colorado has filed for Chapter 11 bankruptcy protection, making it the second casino owner to do so in Indiana since November.  But this action will not stop the company from continuing to conduct its business at both venues.  At the same time, Centaur will continue with its project called the View Valley Downs and Casino.

    Centaur is more than $400 million in debt largely due to a $250 million loan to pay for the state’s license fee and another $150 million borrowing to upgrade its facilities at Hoosier Park.  In October last year, Centaur failed to pay some $13.4 million due on these loans.

    Another Casino Owner Faces Trouble in Bankruptcy

    Majestic Star Casino LLC operates two casinos on riverboats in Gary, Indiana.  Already under bankruptcy, the company is faced with an unusual application by a committee of its creditors.

    In court filings, the committee of creditors contends that secured lenders did not properly perfect their liens on the riverboats and therefore their loans are in reality unsecured.  The committee’s contention comes from the fact that the riverboats now no longer leave their docks and hence should not be classified as vessels but instead they should be fixtures.  And since Majestic Star did not make any requisite ‘fixture filings’, the loans should be classified as unsecured.

    As a consequence, the committee last week filed a motion in the bankruptcy court seeking authority to file a complaint aimed at making void the defective mortgages.  Majestic Star itself has no right to challenge the validity of secured claims because the company has given up that right as part of the process of agreeing to financing under its Chapter 11 case.

    On March 22, the bankruptcy court will hear this case.

    DS Game Producer Files for Bankruptcy

    CING, the producer of many popular DS and Wii games like Hotel Dusk and Trace Memory has filed for bankruptcy.  The company has reportedly a liability of 256 million yen or about $2.5 million.

    What this means to gamers is that CING may not be able to register the trademark for the sequel to one of its more popular games, Hotel Dusk which is called The Last Window: Midnight Promise.

    It appears even a worldwide cult following does not guarantee that a company can stay afloat financially.

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