NEW YORK, May 13 (Reuters) – Credit Suisse Group AG (CSGN.VX), which lent $375 million to the exclusive Yellowstone Club ski and golf community before the club’s bankruptcy, will have to step behind other creditors, after a judge ruled the loan “predatory”.
“The only plausible explanation for Credit Suisse’s actions is that it was simply driven by the fees it was extracting from the loans it was selling, and letting the chips fall where they may,” wrote U.S. Bankruptcy Judge Ralph Kirscher in a preliminary ruling entered on Tuesday.
Credit Suisse lent the money to the club without requesting audited financial statements from Yellowstone Club, among other “curious” decisions, said the judge. The firm received fees of $7.5 million.
“We are disappointed in this ruling and disagree with the court’s findings,” said Credit Suisse spokesman Duncan King. “We are weighing our options at this time.” King declined to comment further.
Credit Suisse has a lien of $232 million, which is now subordinated to the debtor-in-possession financing provided by CrossHarbor Capital Partners LLC, as well as the payment of administrative fees, costs of the bankruptcy and the claims of unsecured creditors.
“The only equitable remedy to compensate for Credit Suisse’s overreaching and predatory lending practices in this instance is to subordinate Credit Suisse’s first lien position to that of CrossHarbor’s super-priority debtor-in-possession financing and to subordinate such lien to that of the allowed claims of unsecured creditors,” wrote Judge Kirscher.
Credit Suisse had originally asked for a transaction fee of 3 percent, but Yellowstone Club owner Timothy Blixseth wanted the fee reduced to 2 percent. The parties agreed to “flip a coin” to decide the rate. Credit Suisse lost the toss, and Blixseth was successful in reducing the transaction fee to 2 percent, according to court documents.
Yellowstone Club, part luxury resort and part residential community for the ultra-wealthy, is located near Big Sky, Montana, and Yellowstone National Park.
It filed for Chapter 11 bankruptcy protection in November, showing how the financial crisis hitting the real estate and leisure industries is also hurting the higher end of the market.
The case is: In re Yellowstone Mountain Club LLC, US Bankruptcy Court, District of Montana, No. 08-61570. (Reporting by Chelsea Emery, editing by Gerald E. McCormick)