In Re Yellowstone Mountain Club, LLC

Real estate developer Tim Blixseth amassed 13,500 acres near Yellowstone National Park to build an exclusive master-planned ski and golf resort called Yellowstone Mountain Club. Blixseth and his former wife, Edra, formed corporations (debtors) that developed the resort. Blixseth controlled the corporations through his holding company, Blixseth Group Inc. (BGI), which was the corporations’ sole Class A shareholder. When Credit Suisse marketed a new syndicated loan product to master-planned communities that allowed equity holders to take sizeable distributions from loan proceeds, Blixseth borrowed $375 million, paying Credit Suisse a 2 percent, $7.5 million transaction fee. The club had previously carried at most $60 million in debt, owed only $20 million at the time, and had experienced negative cash flows. Credit Suisse did some due diligence but never requested audited financial statements and instead relied on projections Blixseth provided that did not match historical performance. The credit agreement specified that $209 million would be used as “distributions or loans” for “purposes unrelated” to the club. The same day Credit Suisse funded the loan, Blixseth transferred $209 million out of the club to BGI, reflected as a journal entry on the books without contemporaneous loan documents. After shareholders threatened to sue, Blixseth drafted and backdated a two-page demand note. Meanwhile, $209 million went to accounts and payoffs that benefited Blixseth and Edra personally. Blixseth said he always intended to repay the money, but Edra testified otherwise. The development corporations filed under Chapter 11 and proposed a reorganization plan that would pay members’ claims. Lenders who provided debtor-in-possession financing and unsecured creditors requested equitable subordination of Credit Suisse’s claim.