Rob McGrath Resigns From Tanner & Haley: Two Years Removed

By: Destination Club News
Date: August 15, 2008

Two years after industry inventor Rob McGrath’s resignation, stemming from Tanner & Haley’s bankruptcy announcement, the destination club industry still feels the ramifications of the pioneer’s downfall, but has begun growing into a new era of financial transparency and responsible disclosure.

Holly Felder Etlin, Chief Restructuring Officer, wrote the following note to Tanner & Haley Members two years ago today:

Today, we received and accepted Rob McGrath’s resignation as chief executive, effective immediately. Rob is widely credited with inventing the destination club business, which today numbers more than twenty major players and generates total revenues of more than a billion dollars. Rob concluded that he could best enable the company he founded to successfully complete its financial reorganization by stepping down. We thank him for making this personally difficult decision and wish him well in his future endeavors.

Also today, Judge Alan H. W. Shiff of the U.S. Bankruptcy Court for the District of Connecticut, Bridgeport Division, gave final approval for the company’s $12.2 million debtor-in-possession (DIP) credit facility. With this permanent financing now in place, the company will be well-positioned to continue to meet its post-petition vendor obligations under normal terms, as well as continue to serve Members and meet its post-petition obligations to its employees.

As you may recall, I indicated on the Member conference call we held on July 27th that we would be prepared on or about today to provide you with details on our operational plans during the reorganization process, including Member travel availability through the holiday period. We have, in fact, developed such plans. We have been asked by the Unsecured Creditors Committee, however, to first share those plans with the Committee and give its members an opportunity to review and comment on them before implementing them and sharing them with Club Members generally. Accordingly, we have postponed wider distribution of our plans for one week, until Monday, August 21st. We appreciate your patience as we provide the Committee with the time for review that it has requested.

Finally, I am pleased to report that our Destination Clubs continue to support their Members and that Members continue to travel with us. Specifically, since July 23rd, Members of our three Clubs’ Private Retreats, Distinctive Retreats and Legendary Retreats have completed approximately 500 retreats representing more than 1,700 Member nights; and that we have booked nearly 200 new retreats representing nearly a thousand Member nights. These numbers are very encouraging, since our Clubs’ ability to continue to serve Members, provide you with a broad range of destinations and services, and preserve the value of Member deposits to the greatest extent possible largely depends on Members continuing to book retreats and remain Members in good standing of your respective Clubs.

On behalf of the company, thank you for your continuing patience, interest and support.

Holly Felder Etlin
Chief Restructuring Officer

After this note, Tanner & Haley’s portfolio of real estate between its three clubs, Private Retreats, Distinctive Retreats, and Legendary Retreats, and 874 total members went through the industry’s most prolific bidding war, with Ciel, Private Escapes, and others making substantial bids before Ultimate Resort completed the transaction, paying nearly $100 million for the club’s real estate and members. Members could elect to join Ultimate Resort with no deposit and a dues-only membership, or simply wait to receive a payout from Tanner & Haley’s liquidated real estate holdings. Nearly 800 Tanner & Haley members elected to move forward with Ultimate Resorts’ offer. The vast majority continue to travel in the new Ultimate Escapes after the Ultimate Resorts and Private Escapes merger.

In court proceedings, it was revealed that Tanner & Haley Destination Clubs owned only a fraction of the properties they claimed, and paid (often extremely) high short term rental fees to accommodate members’ travels during peak periods.  These expenses, among others, burned through membership deposits very quickly. 

The industry black eye caused by Tanner & Haley’s bankruptcy fortunately brought an increased interest in due diligence and financial transparency. Destination club powerhouses Exclusive Resorts, Ultimate Escapes, High Country Club, Solstice Collection, Quintess, Lusso Collection, and the new Abercrombie & Kent Residence Club have since formed and joined a destination club governing body called the Destination Club Association. This association was created to help regulate the industry by recognizing that “destination clubs must assume certain responsibilities by engaging in fair and ethical practices with both club members and prospective club members.” Each member club must disclose the number of homes available to members, rules and regulations to join and access destination club properties, and the percentage of leased properties in the club’s portfolio.

One of the most critical components coming out of the Destination Club Association is the Net Asset Test.  The Net Asset Tests measures the total net assets of a club against the total outstanding liabilities due back to members. Each year on December 31, Clubs must be able to demonstrate through an independent audit result, at least 66.66% asset coverage of those liabilities.

Winston Churchill once said “A pessimist sees the difficulty in every opportunity; and optimist sees the opportunity in every difficulty.” Through the hard times brought on by Tanner & Haley has emerged a better market for destination club buyers. The Veras Group advises potential destination club buyers of the risks and benefits attached to joining any of the 30+ destination clubs currently in operation. We are optimistic the industry will continue to refine its standards, and we are delighted to help our clients navigate this information.