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Resort for the rich owes $343M

Resort for the rich owes $343M

Court documents show the exclusive Yellowstone Club mountain resort in Montana owes an estimated $343 million to creditors such as banks and local contractors.

The residential club for the ultra-rich on Monday filed for Chapter 11 bankruptcy protection. The court filing says tight credit markets had made it difficult to raise money both to pay off the club's debts and make needed repairs to the resort.

Attorneys for the club are scheduled to appear in federal court in Missoula on Wednesday, to ask for Judge Ralph Kirscher's approval of a $4.5 million loan so the resort can open for the winter season.

Founded in 1999, the invitation-only club in the Gallatin Mountains counts Bill Gates and Dan Quayle among its 340 members. It had been planning a sweeping expansion when the credit crisis hit Wall Street. That choked off the club's flow of capital, demonstrating that even the elite are not escaping the nation's economic woes.

Critics accuse the club's founders, Tim and Edra Blixseth, of going on a spending spree even as the luxury real estate market stagnated, setting the stage for the bankruptcy filing. Listings of the Blixseths' assets include at least four foreign estates, two luxury jets and fleets of boats and vehicles.

"What this is about is an orgy of spending. An orgy of borrowing," said Jim Goetz, an attorney who represented cycling star Greg LeMond and others in a lawsuit against the club recently settled for $39.5 million.

Goetz said the final $13 million installment in that settlement - due Saturday - is now in doubt.

"They lived pretty well - Gulf Stream (jets), Bentleys, Aston Martins. In hindsight, as well as in our foresight, it was ill-advised," Goetz said.

Yellowstone Club spokesman Bill Keegan said claims that the Blixseths were diverting club assets for personal use "have no basis in fact." The couple has since divorced, with Edra now controlling the club.

The club still retains assets worth more than its debts. Keegan said the bankruptcy protection was sought so the club can reorganize and settle up with its creditors.

Court filings list the value of the club's property at $778 million. That does not include unsold memberships valued at $336 million. If Chapter 11 protections are granted, the club could continue operating while it works out a plan to pay off its debts.

Meanwhile, the financial turmoil has put on hold expansion plans for the resort that were announced in September.

Through a development partnership with the Discovery Land Company of Arizona, the club had planned to build 450 additional houses and condos, an ice rink, a baseball field, a luxury spa and more ski runs.

"Here they were off and running and planning this expansion. Then, as they looked to secure long term financing, the meltdown occurred and everything froze up," Keegan said.

The bulk of the club's outstanding debt - $307 million - stems from a recently defaulted 2005 loan for $375 million.

When that loan was arranged through Credit Suisse, Tim Blixseth persuaded the club to pass $209 million directly to him and his corporate alter-ego, Blixseth Group Inc., according to court documents in the LeMond case.

Blixseth then attempted to take the club concept global with Yellowstone Club World, an international replica of the Montana enterprise but with a steep $1.5 million buy-in fee. Over the next two years he bought a chateau in France, a golf resort in Scotland, a villa in Mexico and an estate in the Caribbean.

Edra Blixseth has been trying to sell at least some of those properties since taking control of the club in August.

In an e-mail message to The Associated Press, Tim Blixseth on Tuesday denied allegations that the estate buys left the club financially exposed. He said the properties were bought when the real estate market remained "hot" and that some of the properties had since increased in value.

Tim Blixseth also said he had "not been in the loop" regarding the club's recent financial problems. But he said Edra's expansion plans seemed feasible at the time they were announced.

"She had no way of ever knowing what was around the bend in the world of finance," he said. He said the expansion "likely would have come to fruition had the entire world not had a financial heart attack."

However, Montana Gov. Brian Schweitzer said Tuesday that questions remain over the handling of the club's finances. With other creditors lining up to get paid as part of the bankruptcy proceedings, the Democratic governor said local contractors and subcontractors were at risk of losing money owed for work already performed.

He said the state would have an observer at Wednesday's court hearing in Missoula.

"Credit Suisse came in with $375 million, and now there's whole lot of contractors and subcontractors that have not been paid," Schweitzer said. "We'll be openly asking the question, 'Where did the money go?'"

Copyright © 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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