November 12, 2008 - The Yellowstone Club, Montana

Billionare Club Files For Bankruptcy

The Yellowstone Club, which includes Bill Gates as a member, can't pay its creditors

Update February 25, 2009

Arrest Warrant Edra Blixseth

March 6, 2009 - Battle at Big Sky

Even a company with billionaire clients can't stay financed in these lean times. The Yellowstone Club, one of the most exclusive resorts in the U.S., filed for bankruptcy this week.

The resort filed for Chapter 11 bankruptcy protection on Monday. Court documents obtained by the Associated Press reveal that Yellowstone owes an estimated $343 million to creditors.

The club's precarious financial position undermines its brand as a playground for the nation's wealthiest. The gated resort community occupies 13,400 acres in the Southwest corner of Montana and counts Microsoft billionaire Bill Gates among its members. Its Web site lists custom residencies available with prices ranging from $4.8 million to $16 million. Amenities include plenty of prime ski slopes and a golf course.

Yellowstone had taken big loans as part of an aggressive strategy to grow the club beyond the Rocky Mountains. It bought a golf resort in Scotland, a castle in France and estates in Mexico and the Caribbean in recent years. The club is now backing away from the plan and trying to sell some of those properties.

The club's financial troubles brewed as its founders fought. Husband and wife team Tim and Edra Blixseth started the Yellowstone Club in 1999. They agreed to divorce at the end of 2006.

At first, their divorce was billed as an amicable parting in the Wall Street Journal. The paper reported that they sat down with a bottle of wine and a legal pad to divide up their assets.

The split quickly took a more familiar route: many lawyers and millions of dollars in fees. As part of a divorce settlement, Edra received husband Tim's 50% ownership in the club in August.

The bankruptcy is sure to further upset the club's affluent members. In May, 125 Yellowstone Clubbers sent a complaint-filled letter to lawyers for Tim and Edra. They expressed growing concerns over the direction of the club and negative publicity.

They also complained about the lack of new member sales. Wealthy Americans are cutting back this year, just like the rest of the population. Some have seen their net worths fall. Others who have escaped the financial crisis unscathed are also throttling spending to avoid obscene extravagance at a time when many others are struggling. Now, it seems, even taking a vacation is going to get stressful for them.

Original story - Forbes.com

Update February 9, 2009

The former owner of the Yellowstone Club may seek to regain control of the resort for the megarich as it struggles to emerge from federal bankruptcy protection.

Club founder Tim Blixseth gave up the 13,600-acre club and its members-only ski hill as part of his divorce settlement with Edra Blixseth. She took over the enterprise last August.

In court documents filed Monday, Tim Blixseth's attorneys wrote that he has a "strong interest" in bidding on the Yellowstone Club if it is sold at auction.

The club is $400 million in debt. A Boston investment firm, CrossHarbor Capital, has offered to buy it for $100 million.

The club's financial woes are traced largely to its failure to repay a $375 million loan, much of which was later transferred into the Blixseths' private accounts.

Update February 11, 2009

A federal bankruptcy judge will appoint an outside examiner to investigate the proposed sale of the Yellowstone Club, following accusations of collusion between the club's owner and its would-be buyer.

The millionaires-only club, now under Chapter 11 bankruptcy protection, fell almost $400 million into debt last year after its former owner Tim Blixseth diverted hundreds of millions of dollars from the enterprise.

Current owner Edra Blixseth wants to sell the club for $100 million to the Boston investment firm CrossHarbor Capital, barring any higher offers.

Tuesday, U.S. Bankruptcy Judge Ralph Kirscher called for the appointment of an examiner to look into charges of insider transactions between Blixseth and CrossHarbor.

The Boston firm last year offered $470 million for the club but later retracted the proposal.

This news comes shortly after an announcement that club founder Tim Blixseth may seek to regain control of the resort.

Tim Blixseth gave up the 13,600-acre club and its members-only ski hill as part of his divorce settlement with Edra Blixseth. She took over the enterprise last August.

In court documents filed Monday, Tim Blixseth's attorneys wrote that he has a "strong interest" in bidding on the Yellowstone Club if it is sold at auction.

Update February 12, 2009

Creditors owed tens of millions of dollars by the Yellowstone Club are seeking to sue Credit Suisse, accusing the financial firm of making a fraudulent $375 million loan that largely ended up in the pockets of the club's owners.

The millionaires-only ski resort on 13,600 acres south of Bozeman has been under federal bankruptcy protection since November after falling almost $400 million into debt.

Attorneys representing hundreds of club members, unpaid employees and trade vendors say Credit Suisse knew when it made the 2005 loan that most of the money would never reach the club. They say club owners Tim and Edra Blixseth - not the club itself - should have to pay back up to $307 million still owed on that loan.

The Blixseths divorced last year, leaving Edra in charge.

Update February 19, 2009

A Colorado company that is suing the owner of the exclusive Yellowstone Club has asked a judge to issue a warrant for her arrest after she failed to appear at a scheduled court hearing.

The move comes after the U.S. District Court in Colorado issued a separate arrest warrant last week for Edra Blixseth's son, Matthew Crocker. Crocker is the principal developer of Bozeman's stalled Story Mill Development.

As owner of the Yellowstone Club, Edra Blixseth is being sued by Colorado-based Western Capital Partners LLC, which says it is trying to recoup a $13 million debt.

The company says Blixseth and Crocker co-signed on mortgages with the company to finance development on several properties in Gallatin and Madison counties, including the Story Mill property, but defaulted on a $13 million loan.

The federal judge had not issued a warrant for Blixseth as of late Wednesday night.

Update February 20, 2009

The head of the embattled Yellowstone Club is facing more problems.

A federal judge in Colorado has now issued an arrest warrant for Edra Blixseth. It was Thursday after Blixseth failed to show for a scheduled court hearing on Wednesday.

Western Capital Partners LLC is suing Blixseth and her son, Matthew Crocker over a defaulted $13 million loan.

She and Crocker had co-signed for mortgages with Western Capital to finance development of several properties in Gallatin and Madison counties.

A federal bankruptcy judge has also rejected a proposal to sell the Yellowstone Club at auction, saying that the auction process proposed by Blixseth favors Boston-based Cross-Harbor, who has already offered to purchase the club for $100 million.

The judge said that could discourage other bids on the club, which is under federal bankruptcy protection after falling nearly $400 million into debt last year.

Update February 25, 2009

Warrant approved for Edra Blixseth

A U.S. District Court judge Thursday approved a warrant for the arrest of Yellowstone Club owner Edra Blixseth after she missed a court date earlier this week to answer for a $13 million loan.

When Blixseth did not appear in court Wednesday, the lender, Western Capital Partners, LLC, asked Magistrate Judge Kathleen M. Tafoya to issue a warrant for her arrest, according to court documents.

An attorney for Western Capital, Robert Hatch, told the court that he had been in contact with Blixseth’s attorney in California via e-mail and had stressed the importance of appearing in court.

Hatch also told the judge that an e-mail from Blixseth’s attorney suggested she may file for bankruptcy, according to court documents.

“We have not heard from Edra or her attorney for a little while,” Christopher Conant, another attorney representing Western Capital, said Thursday. “Obviously, she did not appear in court.”

Blixseth advised the court prior to the hearing that she would be unable to attend, her spokesman, Bill Keegan, said Thursday.

Repeated phone calls to her attorneys were not returned.

The U.S. District Court in Colorado has also issued a separate arrest warrant for Blixseth’s son, Matthew Crocker, the principal developer of Bozeman’s planned but stalled Story Mill Development, according to court records.

Crocker, who was summoned to a similar hearing last week and also did not appear, was found in contempt on Feb 12. Court records indicate that a warrant was issued for his arrest on Feb 13.

The mother and son cosigned on mortgages to finance development on several properties in Gallatin and Madison counties, including the Story Mill property, with Western Capital, Hatch said.

In June 2007, Western Capital loaned more than $13 million to Crocker’s company, Gobuild, the lead developer on the Story Mill project and Blixseth “to facilitate certain real estate development projects,” according to court records.

Crocker and Blixseth defaulted as of Dec. 6, 2007. Blixseth then modified the loan with Western Capital in June 2008, pledging a condominium in Seattle as additional collateral, according to court records.

Western Capital claims that Blixseth knowingly misrepresented herself when renegotiating the loan in June 2008. She maintained, according to court documents, that she was not the defendant in civil litigation, yet according to an affidavit filed on behalf of Western Capital Partners president and principal, Bret Berglund, she was the defendant in a civil case in Nevada at the time of the renegotiation.

“Had Edra Blixseth disclosed that she was named as a cross defendant in the above mentioned litigation, WCP would not have executed the modification, but would instead have initiated steps to enforce its rights under the loan agreement,” according to the affidavit.

In the affidavit, Berglund refers to Blixseth’s action as “fraudulent nondisclosure.”

But Keegan said Blixseth was not involved in the long-standing dispute, which alleged Blixseth’s partner, Dennis Montgomery, took trade secrets involving national security-related software from eTreppid Technologies, a company that manufactures software capable of shrinking data so it can be transmitted faster, and claimed it as his own.

“That claim has no basis in fact,” Keegan said.

In December, Montgomery and Blixseth were ordered by a U.S. District Court in Nevada to pay more than $25 million as a result of the civil suit, according to court records.

This is not Blixseth’s first run-in with creditors. She assumed ownership of the Yellowstone Club after a messy divorce with ex-husband and club founder, Tim Blixseth. Several months after taking the helm, the club was forced to file for Chapter 11 bankruptcy amid a flurry of debt and allegations of sketchy financial dealings.

Update Story - Bozeman Daily Chronicle