Tamarack: Not Our Fault

While the bankruptcy of the principals of Tamarack is being passed off as “just a business tactic,” The GUARDIAN sees it as another “Elkhorn At Sun Valley” and a growing trend among developers. We figure there will be local folks who get stiffed before it is all over so we asked for a legal opinion.

Bankruptcy Attorney

Almost without fail, a business will avoid filing a chapter 11 until that business has no choice.  Those connected with Tamarack Resort probably agonized over their decision.   They obviously took what he believed was the surest and safest route to keep Cross Atlantic and VPG (owners of the resort) alive. 

February 15, 2008 saw  the chapter 11 filing of the owners of Tamarack Resort.  Within the last several months, other commercial developers in Boise have filed chapter 11.  The developer of the hole in downtown Boise and a developer of several commercial  buildings downtown has filed.  The Funny Bone club went the way of chapter 11, leaving all of us a little bit less amused.

Chapter 11 is a way to let a business reamortize its debt, to pay accounts payable and its lenders, that may be long since due, over several years.  A chapter 11 debtor may not pay its unsecured debt, at all.   The business stays in business, it keeps some if not all of its employees, and if it wants to survive the chapter 11, it pays in full for the new goods and services that it buys.  

Arguably, if it has stable cash flow, a business in chapter 11 can rewrite its debt to pay it off over five years, ten years, or whatever length of time it can persuade a lender or a bankruptcy judge is reasonable and leaves the lender with protection. 
Real Estate does not usually go down in value, except for 2006 to 2008 and counting, so a business could pay a real estate loan off over a longer period of time, maybe ten years.  The problem with most businesses is getting the cash flow to keep paying the new bills as they come due, while still paying off the old debt.  The second part of the problem is that businesses frequently need a capital infusion either from on going profits, from loans or from investors.  Without capital, the business can’t add that new building, new plant, or new resort.

As to the Tamarack filing, well, the Daily Paper needed a headline that would catch the local eye.  So, the filing was by “the owners of Tamarack Resort”–Not by Tamarack, but by the owners.  The first quote from Tamarack’s  president, saying it is not really Tamarack which filed, is immediately suspect because, well, the Daily Paper said that it is the owners of Tamarack Resort that filed.  Doesn’t Tamarack own Tamarack? Sort of.

If you read all the way to the fifth paragraph, you find that Cross Atlantic Real Estate and VPG Investments actually filed bankruptcy.  They are the owners of Tamarack– a separate company. 

For Tamarack, according to its president, Jean-Pierre Boespflug, the problem was not its problem, but the problem of its replacement lender, Societe Generale.  Societe Generale, a French bank,  withdrew its commitment to loan another $118 million because, while it wasn’t looking, one of its junior securities traders racked up $7 billion in losses.  That would be the problem of the French Bank.  And let me tell you, every time I lose $7 billion in security trading, I cut back not just on my loans, but on vacations and lunches too. 

So, it may well be that Mr. Boespflug had everything in place to get a new loan to pay the Cayman Islands bank, until a junior trader threw a wrench in the works.  But the fallout certainly has become a problem for Cross Atlantic and VPG, Tamarack’s owners.  As the Daily Paper notes, without the replacement financing, Cross Atlantic and VPG may have their assets, including the ownership of Tamarack, taken from them.

Alternatively, maybe Mr. Boespflug did NOT have any financing set up to go with Societe Generale.  Maybe he was rolling the dice and came up short.  Maybe he has been looking for loans in all the wrong places and ran out of time.  Maybe Societe Generale’s problem is just lucky timing to take the blame.  Still, most major financial institutions are reeling from the sub prime loan mess, and tightening up credit  restrictions accordingly.  We have all seen developers come up with no financing after making public claims that “everything is in place” for the various deals.

Societe Generale was just the most recent financial institution to announce multi-billion dollar losses.  Most major financial institutions have already announced theirs. 

The result of all of the current problems is that even if Cross Atlantic and VPG had been well positioned to get replacement financing a year ago, or six months ago they may find it impossible to secure financing today–even if they have the same financial position.

For borrowers with less financial strength, the problems lenders face have made it far more difficult to find replacement financing that might have been previously granted.

If that is the case, then Cross Atlantic and VPG really can do nothing more than hold off creditors and hope the financial world starts making loans again.  That may be just a race against time. 

If, as Mr. Boespflug says, he has positioned the business to have cash to carry it for a few months, maybe there will be a happy ending.  Recall that Micron Technology has been suffering large losses for several years, but survives because its cash flow is strong enough to carry its business. 

What does it all mean?  The good news, that you see with every news report, is the business filing bankruptcy really is not facing severe financial problems.  Filing bankruptcy gives the business an opportunity to have some breathing room to regroup, rather than fighting off creditors.

Understand that a business filing a chapter 11 bankruptcy  is trying to remain afloat with every ounce of strength it has.  Public perception matters.  No one will risk doing business with someone who likely will sink tomorrow or next week.  Tamarack does not expect to sell any real estate, memberships, or anything else if buyers do not believe the development will not be completed.  So, you can expect that every news story will repeat those reassuring phrases. 

Are those businesses telling the truth?  They sure sound optimistic.  Invariably, they are optimistic because it can be costly to be pessimistic.  Even if they think the best they can do is find a buyer for either the business as a whole, or the assets of the business, chances improve if the business is not foretelling its impending demise.    My favorite line from the bad guy in a bad movie is “Chance favors the prepared mind.” 

Well, if the people running the business are not scaring away any potential customer, buyer, investor or lender, and they are paying attention, they may be better prepared to take advantage of whatever chance comes their way.

Comments & Discussion

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  1. I am a small business owner and by default an unsecured lender in that I provide goods and services to the retail and hospitality industries like Tamarak on a billable basis and have been burned so many times by chapter 11 bankruptcies that I have had to build it into my costs and practices to all my customers up front.

    Under Bush the II the bankruptcy laws were changed to protect the banks by protecting them from the huge amount of unsecured credit card borrowers that they have solicited into an obscene amount of debt while doing nothing to protect the struggling small business’ like mine.

    The bankruptcy laws were originally enacted to protect citizens from onerous and excessive lending practices and it’s a sad state of affairs that they have become so corrupted as to become a routine business practice.

  2. Thank you for being so informative. What a great resource for us.

  3. Dan Shepherd
    Feb 22, 2008, 8:08 am

    The bankruptcy attorney laid out the situation with Tamarack Resort extremely well. It boils down to this: the resort filed for bankruptcy protection after Societe Generale withdrew the resort’s credit line. Given this unexpected and critical blow, the resort had to take steps to ensure that it not only survives, but thrives. And as it thrives going forward so do the people it employs, so do its creditors and vendors, etc. Instead of finger-pointing at Tamarack Resort, people should have open minds and allow it to continue doing the right things to make lemonade out of the current lemons Societe Generale threw at it. It’s a world-class resort which has already greatly lifted up the state’s reputation and driven tourism dollars to it and will do so for years to come. It has provided a much coveted year-round recreational venue for state residents. If the owners were only in it for a quick buck they would have sold the project and bailed long ago. Mark these words: Tamarack Resort will be a shining light for the state and its residents for decades to come.

  4. Dan Shepherd–Your cheerleader attitude sounds like it is straight from the Chamber of Commerce or on the payroll at Tamarack. Before you get too far from reality, remember they illegally cut trails through our forest, paid fines for polluting our lake, have exclusive use of our shore, and there is a plan to give them control of 18 square MILES of public land–and they still can’t make it.

    That place is nothing more than an over-hyped housing development for rich speculators. The Fairmont deal is doomed since no intelligent investor is going to lend on a house of cards in light of all that has happened in Valley County and worldwide.

    You should be ashamed of your attempt to scam the locals! Apart from people being layed off from low paying jobs, I will bet you a year’s salary Idaho folks who have provided labor or product will be left holding the bag.

    EDITOR NOTE–We did some online searches and it appears Shepherd is/has been a paid flak for assorted golf courses and tournaments. He often mentions Tamarack in his press releases. Looks like he may have worked for the Idaho Tourism dept. at one time as well.

  5. Once again I find myself reading from D.C. about my home state while I am stationed in the nation’s capitol. I was living in Boise at the time Tamarack (or is it Tamawreck?) was being pushed and built with their offices in 8th Street Marketplace. My question is what did they, the “Owners” do with all the money that was made when they sold out all their properties in two shakes of a lamb’s tail? I’m thinking that prudent business practices would have led them to reinvest their profits into the company so that they had a rainy-financing fund. Maybe they should talk to Micron’s bankers and get the same kind of funding that other non-profitable Idaho companies secure.

  6. Anthony- I like that- Tamawreck. As for the profits, I bet they have yet to be realized. The village/condo’s and Fairmont have to be built before they see any money from the pre-sell. They only money they may be holding is Earnest Money.

    Tamawreck may have bit off more than they can chew. Hopefully they are able to pay all who are owed and prevent it from becoming another Kimberland Meadows.

  7. Excellent write up Randy. Anthony, the rumor on the street was and is that Tamarack, or entities controlled or influenced by them, actually bought much of that property so they could tout the “record” sales and help create a feeding frenzy so that people will be excited to purchase the resale of those properties. I would think that the paper generated by those sales would also be useful to show to lenders to induce them to issue a line of credit. But I must emphasize that this is only rumor. I have no evidence of this other than what’s been printed. Since they are in the speculation business I figured I could be as well. I do have a contractor client who stated that the place has been a “ghost town” this winter. By that he means that there is very little work for him. He’s actually been commuting to Park City to get revenue. I also have a developer buddy who pursuaded me long ago that the venture couldn’t work with the limited population base nearby among the factors cited.

  8. When do we start hearing proposals for more government aid for Tamawreck? Never, I hope.

    EDITOR NOTE–There is a plan in the works to make 18 square miles of public land available to them through some intergovernmental trades with the U.S. Forest service and state land board.

    Tamarack is to pay the USFS about $1.6 million for an environmental statement, but probably won’t do it soon. The state land board is looking at a “business plan,” but they are not seeking any proposals outside Tamarack at present. This needs to be opened up to all comers, not handled as an insider trade.

  9. Look for more developer corporations in Idaho to start begging for special tax breaks and other public support. Bryan’s Run and Avimor will be looking for favors in the near future.

    The real estate market is taking a dive, as lending dries up due to the cascading defaults throughout the financial world. Sub-Prime borrowers are being blamed, now, but the whole lending business is ripe for collapse. Tamarack may have sold a bunch of lots . . . but how many are paid for? How many of those deals will fall through because the buyers’ financing fails, too?

    The past two years saw a lot of planned communities being proposed here in Idaho as out-of-state developers swooped in to profit from cheap Idaho land. Local landowners and politicians climbed right into bed with them, and they have stomped all over locals who cried “Too much, too fast!”

    I hope they all lose so much money they’ll swear off mass development for the next 50 years, and leave us some open land. Very soon it is going to be obvious we don’t have enough real jobs (except construction), we don’t have enough trade, we don’t have enough water, and this ill-conceived rapid growth has poisoned the air.

    Maybe the down-turn will buy us some time to start thinking rationally about how we want to live in the future, instead of just bending over for builders.

    EDITOR NOTE–Spoken like a true growthophobe…welcome aboard!

  10. Interesting about the rumor, Thanks to Clancy and Sisyphus I started to wonder what the parent holding companies financials were the year that they “sold” all of those cabins. I think I might have to do a little research of my own now and see who really owns the cabins and lots that were gone in the first few months before they were even built as I watched all over the news when I was living there. It does make me laugh though that here I live in the land of corruption and back door deals and I look upon my dear old Idaho and can’t help but compare how it makes so much sense for the governor to have worked in D.C. for awhile, the former governor working up here now and oh yeah, they both worked deeply to get the first new ski resort in 20+ years open. Seems like the governor and federal cabinet secretaries brought good old D.C. deal making to Idaho. Where or where is Andrus when you need him?

  11. robert lilly
    Feb 23, 2008, 12:51 pm

    Jean-Pierre should be recognized as a marketing genius. He is a foreign investor that took advantage of the US economy plus dumb-luck, to cause an absolute feeding frenzy for his real estate.

    It appears the entire infrastructure was built with borrowed money while the $500 million or so profit is probably hiding in the Caymans. As far as the “French Connection”… the bank which withdrew its loan offer; this is just more mystery added to the plot that should be sold as a Hollywood blockbuster.

    My opinion as to the future of Tamarack is this: The cash that was being thrown at them is coming to an end. There is no doubt “a” resort will be built, however I speculate the pie will be split up. The ski operations will be sold off, the golf course will be sold off, and the base area will be yet another separate entity. The losers will be all of those buyers who are left with real estate that is worth 50 cents on the dollar.

    Tamarack has caused its problems all by themselves, and the common denominator has been greed. They failed to provide due diligence during construction causing EPA fines; they are being sued by a San Diego couple for a questionable real estate transaction, and they recently asked the State to back a sewer and water expansion project so they can profit from more real estate sales.

    I’m sure Tamarack owners would like you to believe everything is “business as usual”…that way no one will see them fleeing south on Hwy 55 with a French passport in hand.

  12. Jean Pierre and his crew have been working on their projects in Valley County almost forever. I believe the first time he went bankrupt the project was called “Valbois” or something like that. That must have been in the late 80’s as I was working for a title company at the time and had much communication with the title company in Cascade. My friends in the business were 100% sure that the project would succeed, until it didn’t. It would be very interesting to see how many people got burned financially by that crew, this time around.

  13. There is more wrong with Tamerack than you can see or know. If the project was so good then getting a punny $116 million would not be a problem – other lenders would be happy to get in.

    It is not the French banks that are the problem it is Tamerack itself. Like other “developers” or should we say “con artists” they sweet talk others (usually dumb locals) into thinking that they are so smart that they cannot fail. Then the locals give up the farm. Then the developers file Chapter 11 – let all the locals holding empty IOU’s and then they launder a bunch of money and head out of the country.

    Happens even with condo developers around town too – just on a smaller scale.

  14. I wonder how the Agassi’s Fairmont will fair without Bayview Financial being involved anymore.

  15. What will happen to (sellers’) real estate prices at Tamarack?

    Obviously they will fall, but by how much?
    And will the resort ever get built out now?

    EDITOR NOTE–All our sources and recent news reports indicate the place is doomed and awaiting implosion. Money is simply not available for such schemes.

  16. The Wall Street Journal has an interesting article on this project in today’s edition.

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