Editors note: This is a follow-up to “Predatory loan decision has huge implications for hotel lending.”

REPORT FROM THE U.S.—Lawyers representing various parties in the Yellowstone Club vs. Credit Suisse case and Tim Blixseth, the debtor, said the lender should expect other resort-borrowers to come forward. 

While Judge Ralph B. Kirscher’s ruling is specific in that Tim Blixseth used the loan proceeds primarily for things unrelated to the resort and Credit Suisse was aware of this, he did mention in his opinion that there are other resorts where the situation could be similar.

Joseph A. Eisenberg, partner at Jeffer Mangels Butler & Marmaro LLP, represented Tim Blixseth’s ex-wife, who most recently owned Yellowstone Club of Big Sky, Montana, during the bankruptcy proceedings, and clarified the implications of the judge’s decision.

“I’m not sure it has any specific meaning for the hotel industry, it just means that—I suspect—that as a consequence of overburdening a property with debt, a lender is going to find that its conduct and economics are very heavily scrutinized,” he said. “The court had to determine the reasonableness and equivalency.”

Troy Greenfield, lead litigator from Bullivant Houser Bailey PC, which represented Yellowstone Club LLC in the case, said his firm only had about six weeks to get depositions and more than 2 million pages were produced.

“We learned through the depositions that the common denominator with the (resort projects that used the) loan product was the ability to take out large distributions. And all have failed.

“This particular loan product was marketed in 2005 and 2006. The cornerstone of the product was the ability of properties to take an equity distribution before the project was even completed. We don’t know how widespread the product was, but you have to assume it was marketed to other hotels.”

From Kirscher’s opinion, it is known that Credit Suisse made loans to Tamarack (Idaho) Resort; Promontory in Park City, Utah; Lake Las Vegas in Henderson, Nevada; Turtle Bay Resort in Oahu, Hawaii; and Ginn Resorts. Kirscher said if these developments are anything like the Yellowstone case, “they were doomed to failure once they received their loans from Credit Suisse.”

Another aspect of the case that raised eyebrows was the new valuation methodology that Credit Suisse claimed to have developed with Cushman & Wakefield. Greenfield said Cushman & Wakefield first provided a market value analysis, according to depositions from the lender. Then Credit Suisse requested a “total net value analysis” for which the lender provided its own methodology.

“It looks like it’s an as-is market-value valuation, and you just don’t discount it to present value,” Greenfield said. “It’s essentially a cash-flow analysis.”

Greenberg said it should have never been labeled as an appraisal of the Yellowstone Club. 

Road map for others

Eisenberg confirmed that the judge suggested that others take up a claim against Credit Suisse.

“There is a very clear road map for participants in loans to look very carefully at institutions that put them in the loan,” he said. “(For those) that worked with the creator and packager of this loan, I suspect this is not the end of the story. It’s the end from the bankruptcy point of view, but not in terms of folks who lost money (in the syndication) that will seek to recover it.”