Intrawest foreclosure, Whistler Blackcomb and Olympic Athlete’s Village to be auctioned during games

More drama at the Olympic Games? What games?

Well, are we going to have the 2010 Olympic Games or aren’t we? Newspapers and television have been telling us that Whistler Blackcomb is bankrupt and the creditors are swooping in for the kill. Amid the panic and confusion, what’s the real story here?

This is what CVNews has managed to glean about the possibilities and probabilities of the situation. First, to lay some groundwork, we need to know about the players.

New York-based Fortress Investment Group, a private-equity and publicly-traded hedge fund, acquired Vancouver-based Intrawest, the owner of Whistler Blackcomb, two years ago, just before the economic downturn, in a $2.8 billion highly leveraged buy-out and controls the company with a $1.37 billion equity stake. It also financed the $1 billion 1,100-unit Vancouver Athlete’s Village and the plan was to sell the units after the Olympics.

Intrawest owns not only Whistler Blackcomb but also several other North American ski resorts including Panorama Mountain Resort in the East Kootenays of British Columbia. Its partner, Nippon Cable owns 23% of the company but the operation of Whistler is solely owned by Intrawest.

Now here’s where the story gets complicated. When Intrawest’s financial picture became uncertain, a group of lenders, led by Lehman Brothers Investment Bank of New York and Davidson Kempner came to the rescue with aid to restructure the senior debt which had been restructured in October of 2008, coming to maturity in October 2009. The restructure provided for a 6-month extension if Intrawest could reduce its debt to a certain, agreed-upon level.

Then came the downfall and subsequent bankruptcy of Lehman Brothers, who was and is, Intrawest’s largest creditor. Lehman Brothers is presently being dismantled and is restructuring its own debt through the firm of Alvarez and Marsal. So Lehman Brothers is desperately trying to find more than $1 trillion to pay off its own creditor claims as a result of its bankruptcy. Lehmand Brothers has found Fortress difficult and talks have stalled.

When Intrawest was not able to reduce its debt, the loan became due in full. Then the lenders agreed to another 60-day extension but the company was still not able to get financing. In December 2009, after no progress, the lenders decided that they would have to take remedies and so on January 8, 2010, they gave notice that they were proceeding with foreclosure.

According to a January 21, 2010 article in a Pique Magazine which calls itself “Whistlers Magazine”, creditors, represented by Wilmington Trust FSB, plan to auction off the assets of Whistler Blackcomb ski resort on February 19, 2010, right in the middle of the Olympics. Hedge-fund sponsor Davidson Kempner Capital Management published a notice in the Wall Street Journal on January 19, 2010, and other US newspapers, seeking buyers for assets of several of Intrawest’s holdings, including Whistler.

Fortress CEO Wesley Edens has apparently said privately that he has a legal right to stop the Games from happening.

On the other side of the coin, Fortress has already written down most of its Intrawest investment but some of its investors have co-investments in Intrawest so it is crucial for Fortress to keep Intrawest alive.

So where does this leave Intrawest and the future of the Olympics? There are some facts here that may play into the picture.

Whistler Blackcomb also has a contract with VANOC for hosting the alpine skiing and sliding events, which is reported to be worth approximately $50 million.

VANOC has apparently guaranteed that it would keep Intrawest afloat for the duration of the games at a cost of approximately $50 million and Intrawest CEO Bill Jensen is confident that VANOC will keep its financial commitment.

The Canadian government has an enormous stake in seeing that Canada puts its best foot forward since the eyes of the world will be focused on the country.

It is believed that Nippon Cable holds the first option to purchase Whistler Blackcomb and that may or may not be an option for troubled Intrawest.

Borrowing in the present economic market will not be easy and even if possible, the borrower will pay high interest rates. For every one percentage point hike in interest, the borrower will pay $14 million per year in higher payments.

There is much optimism about the outcome, however.

Dan Doyle, Executive Vice President of venue construction for VANOC assured the public that “We have a business plan to take care of any eventuality … Auctions don’t happen overnight.”

During the previous Intrawest restructuring in 2008/2009, Whistler Mayor, Ken Malamed, had said that even if Intrawest had to file for bankruptcy, a trustee would be appointed to continue running the resort. “It’s an incredibly successful and well-run business and there’s no reason to think it wouldn’t carry on in any event”, he said.

Although VANOC chairman, Rusty Goepel doesn’t understand why the creditors are moving so quickly on this since it would be to their advantage to take time to find the best financial deals, Simon Fraser University marketing expert, Lindsay Meredith sees the wisdom in the move. “You can’t do better advertising than the Olympics. A lot of folks are going to notice that mountain and a lot of those folks have money”, he said. “This might be a good time if you’re a banker and you’re trying to get your money back … a great time to move an asset like Whistler.”

All parties, including the Canadian government have declined to comment but in a news release of January 21, 2010, Ian Galbraith of the Corporate Communications Department at Intrawest stated that ”… Fortress Investment Group continues to own and control Intrawest and all of its properties. Serious discussions with Intrawest’s lenders are ongoing regarding refinancing and the company continues to operate ‘business as usual’ at all of its resort properties”.

Meanwhile, organizers plan to truck in snow for the freestyle skiing at Cypress Mountain, just north of Vancouver. The forecast for the week ahead is for rain, no new snow and no cold weather!

Related links:

• Whistler lenders move to foreclose:
http://www.cbc.ca/money/story/2010/01/20/intrawest-whistler-olympics.html

• Intrawest foreclosure a threat to Olympics:
http://www.nypost.com/p/news/business/intrawest_foreclosure_threat_to_15qRjmzgdwLCkGfNdhdwjI

• Lenders plan to auction Intrawest assets:
http://www.theglobeandmail.com/report-on-business/lenders-foreclose-on-intrawest/article1437922/

• Whistler Olympic ski venue faces foreclosure‎:
http://olympics.thestar.com/2010/article/753617–whistler-olympic-ski-venue-faces-foreclosure

• Intrawest CNW Press Release saying ‘business as usual’:
http://www.newswire.ca/en/releases/archive/January2010/20/c2602.html