Ski you later: A PE player’s big investment goes downhill – Crain’s New York Business

Ski you later: A PE player’s big investment goes downhill – Crain’s New York Business

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  1. Ski you later: A PE player’s big investment goes downhill
    Fortress-owned resorts, late on debt payments, getting chilly reception from creditors, Canada
    Share   Print  Email   Add a comment   By Hilary Potkewitz

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    BLAME CANADA: Whistler Blackcomb resort near Vancouver is the backdrop for strong-arm financial tactics by a Fortress Investments holding.
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    With just a week to go before the Winter Games, one would think the owner of the biggest ski venue in Vancouver—and site of the slalom and bobsled events—is tingling with Olympic anticipation over the global media exposure.
    Instead, Manhattan-based private equity firm Fortress Investment Group, which owns Olympic host resort Whistler Blackcomb through its Intrawest Holdings, is scrambling to sell assets in an attempt to stave off foreclosure.
    In the last days of January, Intrawest shed two ski resort properties: Panorama Mountain Village in British Columbia and the Village at Squaw Valley in Tahoe, Calif. It also sold Copper Mountain, in Colorado, in November.
    The firm missed two extensions on a $524 million debt payment and defaulted in December. The debt was part of the leveraged buyout deal Fortress concocted when it acquired Intrawest four years ago for $2.8 billion.
    But the Fortress saga is more than just another story of ill-timed real estate investment. It also exposes a major miscalculation by a financial giant that tried using strong-arm Wall Street tactics to get its way—and wiped out.
    “They really bought at the peak of the market,” notes David Byrd, director of education and risk management for the National Ski Areas Association. “They were in part a victim of the recession and the drop in real estate prices.”
    Hunting for deals
    Ever since private equity firm Apollo Management took Vail Resorts public in 1997 for a then-spectacular $213 million (Managing Partner Leon Black had snatched it out of bankruptcy), PE managers have been hunting the back country to make their own tracks in ski resort deals.
    Apollo’s Vail deal is considered “the biggest home run of all time in the ski industry,” says Ken Shapiro, a principal of money management firm Condor Capital, who follows the ski industry closely. “Since then, it’s been a mixed bag.”
    Fortress did not return calls for comment. Intrawest declined to comment, noting that last month it issued a statement saying it was actively engaged in refinancing discussions with lenders.
    Actually, Intrawest also was engaged in heated discussions with the Canadian government, pushing for an up-front payment for the use of its resort for the Olympics in an effort to fend off imminent foreclosure.
    Typically, a ski resort suffers a drop-off in business during the Olympics because recreational skiers stay away. Vancouver’s Olympic committee agreed to reimburse the resort for the estimated revenue loss. But Intrawest is threatening legal action against the Canadian Olympic authority if Ottawa doesn’t pay the nearly $100 million by next week. Canadian Olympic officials claim the agreement was to reimburse the resort after the games.
    “There’s a fair amount of posturing going on,” says Mr. Shapiro.
    Fortress’ creditors, led by Lehman Brothers Holdings, are running out of patience. They are threatening to start auctioning off its remaining ski resort assets, including Vermont’s Stratton Mountain, Colorado’s Steamboat and Winter Park, and Whistler Blackcomb.
    Trouble ahead
    The auction is scheduled for Feb. 19 in Manhattan, the opening day of the Olympic slalom competition on the slopes of—yes—Whistler Blackcomb.
    The dispute with its lenders has been going on for months but took on added urgency as the Games approached. Back in November, as part of the terms of its deadline extension, Fortress sold Copper Mountain.
    Terms were not disclosed, but estimates put the sale price at about $100 million, 45% less than the resort’s July valuation.
    Some speculate that Fortress has been trying to use the pending Olympics as a bargaining chip to buy more time.
    With creditors threatening to foreclose, Fortress tried to shift responsibility to the Canadian government for stalling on its reimbursement payment. It was an arm-twister’s tactic, based on the idea that a host country would go to great lengths to avoid potential embarrassment on such an international stage.
    “I guess the trump card they thought they had was the Canadian government,” says Hayley Wolff, an analyst with Rochdale Research who covers ski resorts.
    It was another serious misjudgment. Last week, the Vancouver Organizing Committee officially declared that it would not calculate Fortress’ payment until after the Games were over, end of story.
    Ms. Wolff says the outcome was predictable, adding, “Which headline is worse: ‘Whistler in bankruptcy’ or ‘Canadian government bails out New York hedge fund’?”
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