The exclusive Yellowstone Club resort in Montana, a residential club for the ultra-rich, on Monday filed for Chapter 11 bankruptcy protection.
Court documents show the exclusive resort owes an estimated $343 million to creditors such as banks and local contractors. The court filing says tight credit markets had made it difficult to raise money to pay off those debts and make needed repairs to the resort.
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 some of the elite are not escaping the nation's economic woes.
Attorneys for the club are to appear in federal court in Missoula on Wednesday to ask U.S. District Judge Ralph Kirscher to approve a $4.5 million loan so the resort can open for the winter.
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 that was 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," Goetz said. "In hindsight, as well as in our foresight, it was ill-advised."
Yellowstone Club spokesman Bill Keegan said Goetz's claims "have no basis in fact" and that the Blixseths' possessions were not bought with the club's assets. The couple has since divorced, with Edra now controlling the club.
The club still retains assets worth more than its debts, Keegan said, and the bankruptcy protection was sought so it can reorganize and settle its debts.
Court filings list the value of the club's property at $778 million. That does not include unsold memberships valued at $336 million. If the club is granted Chapter 11 protection, it could continue operating while it works out a plan to pay off its debts.
Montana Gov. Brian Schweitzer said Tuesday he's concerned that local contractors and subcontractors might not get paid for work already performed, and that the state will have an observer at Wednesday's court hearing.
"We'll be openly asking the question, 'Where did the money go?'" he said.
The financial turmoil has put on hold expansion plans the club announced in September. Through a development partnership with the Discovery Land Company of Arizona, the club 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," said Keegan.
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.
He then attempted to take the club concept worldwide 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 Tim Blixseth 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 finances since his divorce was finalized. 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 added that her plans "likely would have come to fruition had the entire world not had a financial heart attack."