As a former Ski Resort Management and lover of snowboarding type, I am always interested in notable ski resort news. And, when the biggest players are in trouble, it is news for everyone.
On Dec.23, 2009, Intrawest, whose ski properties include Whistler Blackcomb, missed a $524-million payment on a $1.4-billion loan, after already receiving a two month extension, and this isn’t the first time in the last few years they have been in danger of doing so. So while you were up there skiing away over the holidays, the company was and is dangerously close to loan default. Intrawest in default? Really?
Kicked in the Investment Portfolio
In August 2006, Intrawest ULC, a Vancouver-based ski-resort operator, and one that was already in some debt distress, was purchased by a private-equity firm, Fortress Investment Group LLC, for a total of $2.8 billion. Fortress paid $1.8 in cash and debt, and also assumed close to $1 billion in additional existing debt at the time. The price paid by Fortress was approximately a 20 percent premium over the share price at the time.
In August 2006, real estate and the economy in general was on steroids, and Fortress clearly wanted in on this prime resort asset. This was before the forthcoming global economic failures, and most specifically the collapse of real estate and leisure spending. Three years later, in an August 2009 letter to investors, Fortress reportedly marked down the value of the Intrawest investment to 29 cents on the dollar. In other words, Intrawest is now worth 29% of what Fortress paid for it in 2006! OUCH!
… I am sensing a trend
The 2006 deal was a leveraged buyout, including a $1.7-billion loan that remained on Intrawest’s books, and which came due in the Fall of 2008 (Oct.23, 2008), precisely during the widely recognized global financial crisis. At that point, Fortress scrambled to refinance the loan after Intrawest, which holds the debt, was pushed to the brink of creditor protection at that point. But, it almost seemed like it was simply a formality that the credit could be renegotiated, as Intrawest was essentially a ‘healthy’ asset. But, in turn, it has now become more reasonable to assert that Intrawest is simply unable to repay that loan under current conditions. As part of the Oct.23, 2008 deal, Intrawest was to pay $524 million on or by Oct.23, 2009. By Oct.23, 2009, they had subsequently negotiated a 60-day extension, so the $524 million payment due date was moved to Dec.23, 2009 … which has now come and gone with no payment. So, Intrawest has repeatedly been forced to renegotiate its’ loan terms, over the course of the last several years, skirting the issue of creditor protection or even potential bankruptcy. Now what?
The Sky has fallen for Intrawest; but, for many of us, it will only be filled with snow
What most people do not realize is resort operations, such as, Whistler Blackcomb are more real estate plays than simple ski mountain operations. While the skiing is nice, the true investment value is in the asset value of the real estate built around these operations. Moreover, many such operations actually lose money on their ski operations, but make money on the resort as a whole through various real estate plays: private homes, condos, timeshare properties, hotels, retail and commercial space.
Meanwhile, if Fortress has marked down their Intrawest investment to 29% of the original price paid, at a time when their stock price is also 75% lower than it was in 2007, and after already refinancing Intrawest’s loan on several occasions, they may not ultimately feel the need or be able to refinance this time; meaning Intrawest would be forced into creditor protection.
Should skiers and snowboarders be concerned about operational issues? At this point, not really. One way or another, Intrawest, and especially their flagship location, WhistlerBlackcomb, still pulls in a lot of revenue, so there is considerable value in these operations. Nonetheless, they still have to find a way to pay back their loan. There are a number of ownership and debt payment scenarios that could play out from this point forward: further loan extensions, creditor protection, asset sales, company buyout, and so forth.
This should be an interesting ride. What do you think is going to happen?
[Follow along with this story, in our next posting, Intrawest : 'Trouble' spells 'Foreclosure' ... within 10 days?]
[It's happened! Follow up Foreclosure post, Buy a Ski Resort Campaign : INTRAWEST IN FORECLOSURE!]
[This story further continues, "Intrawest ULC has sold its Panorama Mountain Village", in Tricks are Turning, Intrawest assets go Freestyle]
Sources:
Fortress’s Intrawest Said to Be Near Missing Payment (Update2), Bloomberg.com, Dec.23, 2009
Intrawest, lenders in talks after missed debt payment, The Globe and Mail, Dec.24, 2009
Intrawest may be closer to loan default, The Globe and Mail, Dec.23, 2009
Intrawest skis out of trouble, Canada.com, Oct.23, 2008
Related posts: