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Exclusive millionaires club falls on hard times

- The Washington Times - Friday, November 28, 2008

Nobody in Montana is laughing at the millionaires-only Yellowstone Club as it struggles to stay open after declaring bankruptcy. It's more like smirking.

There's just something inherently ironic about a club whose members include multibillionaire Bill Gates running out of cash and being unable to pay, for example, the $200 owed to the Butte Chamber of Commerce.

"I think most people in town are kind of gloating, you know what I mean?" said Lottie Ortman, a waitress at the Western Cafe in Bozeman, Mont., about an hour from the ultra-exclusive resort. "I mean, you have all these hundreds of millions of dollars in dues, and then you blow it all on Swiss chateaux and whatever."

Attorneys and lenders for the Yellowstone Club managed late Wednesday night to broker a short-term financing deal in federal bankruptcy court that will keep the resort operating through the crucial ski season.

U.S. Bankruptcy Judge Ralph Kirscher gave the go-ahead for the club to borrow $20 million at 15 percent interest from CrossHarbor Capital of Boston, rejecting a competing offer from Credit Suisse.

Attorneys for Credit Suisse argued that CrossHarbor was attempting to take control of the club. CrossHarbor, a real estate investment company, had tried earlier to buy the club.

But the judge said he was more concerned about potential pitfalls with the Credit Suisse plan, such as a requirement for the club to sell off at least $5 million in golf-course lots in 60 days, which he described as unrealistic, according to the Montana Standard.

"Credit Suisse's proposed 60-day sale would create enormous ill-will with the members," Judge Kirscher said in his order. "And while the Yellowstone Club's reputation has been somewhat tarnished by this bankruptcy and the events leading up to this bankruptcy, the magnitude of the stigma would go up exponentially if the Yellowstone Club turned out the lights."

The club filed for bankruptcy Nov. 10, listing in court papers 700 creditors and debts of at least $399 million. A $4.5 million loan arranged earlier this month through Credit Suisse was only enough to keep the club operating for about three weeks as club members and creditors jostled for position.

Located on 13,400 acres in Montana's Gallatin Mountains, the nine-year-old resort counts frequent-world's-richest man Mr. Gates, Los Angeles Dodgers owner Frank McCourt and former Vice President Dan Quayle among its 340 members.

A group of owners, known as the Ad Hoc Committee of Yellowstone Club Members, issued a statement Thursday in support of the agreement. The group has raised questions about whether the club's founders, Tim and Edra Blixseth, have diverted club money to fund their own opulent lifestyle.

The financial package "that keeps the club open and operating is in the best interests of all parties, particularly the local community and the nearly 1,000 dedicated employees of the Yellowstone Club," said the committee's attorney, Jonathan Alter.

During the two-day court hearing in Butte, several parties expressed concern over the impact of the club's collapse on the local economy. Workers are especially needed during the winter to run the ski operation.

"There's a lot of employees from here who work there in the wintertime - it's an hour from here, but we're the closest community to the club," said David Smith, president of the Bozeman Chamber of Commerce.

The club also employs construction teams on its building projects. On the other hand, residents said Yellowstone Club members rarely come into town for shopping or restaurants.

"They don't interact with the people of Bozeman. They're not coming to the Western Cafe, that's for sure," said Ms. Ortman, whose diner boasts the "best chicken-fried steak in the West."

At one time, club members paid $250,000 to join and another $16,000 in annual dues, and were then required to buy one of the resort's properties for their own use. Still, that wasn't enough to prevent the primo resort from becoming mired in debt, offering further proof that even the super-rich aren't immune from the nation's economic crisis.

Founded in 1999, the Yellowstone Club, named for the nearby national park, billed itself as the world's only ski-in, ski-out resort. Its millionaires-only requirement attracted a high-profile clientele drawn to its 60 ski runs, luxurious amenities and promise of privacy.

The Yellowstone Club even had a name for it: "Private Powder."

Mr. Blixseth had ambitious plans for expanding the club internationally, and had bought expensive properties in Mexico, Scotland, France and the Caribbean, even as the real estate market was souring.

Troubles began surfacing earlier this year. First, the Blixseths divorced, with Mrs. Blixseth assuming control of the club. In August, they settled a $39.5 million lawsuit with club member and cycling superstar Greg LeMond, who had accused the Blixseths of trying to buy his minority stake in the company for less than its true value.

Last month, Mr. LeMond asked a state judge to order the Blixseths to pay him the remaining $13 million of the settlement, according to the Associated Press.

Club members had questioned whether a 2005 Credit Suisse loan for $375 million went to the club or to the Blixseths. During the LeMond lawsuit, testimony showed that $209 million was signed over to BGI Inc., a corporation controlled at the time by Mr. Blixseth.

Mrs. Blixseth has sold off some assets since taking over, but the club was still heavily leveraged. With the onset of the economic crisis, and ensuing credit crunch, the club was unable to patch together enough loans to keep its operation running.

It's a far cry from 2006, when the Blixseths had announced plans to construct a $155 million, 53,000-square-foot lodge billed as world's most expensive home. The stone-and-wood Montana mansion, slated to be completed in 2008, was never built.