Ultimate Escapes Bankruptcy Filing Option Overview

By: Destination Club News
Date: September 11, 2010

A titan in the destination club sector with well over 1,000 members, Ultimate Escapes is now teetering on the brink of bankruptcy. In default on their loan agreement with CapitalSource, Ultimate Escapes hosted a webinar for members on Thursday evening to discuss the club's position and five potential options for the club. "We are in crisis," lead President and CEO Jim Tousignant. After speaking about four other alternatives identified by the club, Tousignant would address the one that appears to be most likely: a bankruptcy filing.

"Option number five is filing for bankruptcy protection," Tousignant began when outlining the final alternative discussed by the club. "While bankruptcy filing is an outcome that all stakeholders may want to avoid and which certainly may have significant risks and costs, it may be necessary to complete some form of a transaction for the company. If a bankruptcy were to result in the liquidation of the club's real estate assets, and after taking into account the property sales and marketing costs, the property maintenance costs during the period these properties were being sold, all of the legal and administrative costs associated with a bankruptcy and of course the need to pay off senior debt, there may be nothing left for members or other unsecured creditors in a bankruptcy, and lenders may also potentially lose many millions of dollars as well. In fact the estimate for the losses particularly if it was a liquidation could exceed as much as $30 million for the lender."

"The impact of any bankruptcy on our members could potentially include financial losses, the loss of all membership rights or some portion thereof, including any current and future club reservations may in fact be impacted as well as the loss of all future travel experiences with your family and friends."

Tousignant and the club are leaning towards making Ultimate Escapes member-owned, but a bankruptcy filing could come as early as Monday Tousignant admitted. Please feel free to read our overview of the member-owned option to learn more about our thoughts on the concept.

No matter the support, or lack thereof, the club receives regarding their proposed conversion to become member-owned, the fate of Ultimate Escapes is in the hands primarily of CapitalSource. Tousignant is correct in stating that the liquidation of club residences will result in a significant haircut to the lender with resort real estate still in decline in many destinations and it would be a foregone conclusion that members would not receive any of their membership deposits refunded to them.

While the real estate is likely dominating discussions at CapitalSource, the collected members of Ultimate Escapes are the most valuable commodity available. We have heard rumors that club members are trying to join together to work with CapitalSource and find out what can be done. It will be interesting to see how this all plays out in the coming days.