Ultimate Escapes Conversion To Member-Owned Club Option Overview
By: Destination Club News
Date: September 11, 2010
Ultimate Escapes Destination Club President and CEO Jim Tousignant spoke to members via webinar earlier this week, discussing the club's dire position as a result of being in default of a loan agreement with lender CapitalSource.
"The club finds itself with very little cash and operating under a forbearance agreement with our primary secured lender CapitalSource, as a result of being in default of our loan agreement," Tousignant told members. "CapitalSource is currently providing the club with a very limited funding and time to restructure and recapitalize our business, either on a standalone basis or as part of a merger with another Club or merger with a real estate firm or hospitality company, or through a sale of the club's assets to an acquirer. As no such plan has yet to materialize, it is now increasingly likely that any of these options will be done in a process under bankruptcy protection."
Throughout the 40 minute presentation, Tousignant stressed that another option was available that would be in the best interest of all involved: making Ultimate Escapes a member-owned club.
"One of the real strengths of this plan and idea is that the club would upon a conversion be owned and controlled by our members," said Tousignant. "This option assumes approximately 750 members pay a one-time assessment which we are calling the 'Equity Club Conversion Fee' which would provide each member with the right, but not the obligation, to convert their 'non-equity membership' into 'equity' in the club."
Ultimate Escapes and their advisors predict that between $15 million to $30 million will be needed for the club to move forward. With these two figures in mind, Tousignant laid out two potential structures.
At the $15 million target, Premiere Club members would pay a one-time fee of $15,000, Signature Club members would be responsible for a $20,000 one-time fee and Elite Club members would pay $25,000. At the $30 million target, all of these fees would effectively double, meaning Premiere Club members would pay $30,000, Signature Club members would pay $40,000, and Elite Club members would pay $50,000.
"We certainly believe CapitalSource is more likely to continue to fund an operating plan, in or out of a bankruptcy proceeding, if they believe conversion to a member-owned club is a viable option that can be completed quickly," Tousignant continued. "The full details of a plan to convert to a member-owned club will be presented as soon as possible, which we believe will be next week, to all members after we receive this week indications of interest from a majority of our members and other input from members, which we very much would like to receive, and will based on that input and that support in terms of indications of interest, will then provide the membership base next week with a full set of detailed operating budgets and other materials, all of which would of course be subject to approval by our lender. Members are only being asked now to provide simply an indication of interest and no decision to participate in any plan in the future, including a plan to convert to a member-owned club, is being required at this time."
Ultimate Escapes members have until the end of Sunday to vote in the club's poll, voicing a non-binding yes or no opinion on this plan. The club plans on releasing the results of this vote on Monday, needing approximately 750 members to support the plan.
We see several problems with this plan as presently constituted. The primary issue that we see is the large debt obligation to CapitalSource will remain in place even with the contribution of between $15 million and $30 million from members. While the full plan is coming next week and not all of the details have yet been revealed, it does not appear to us that this member-owned conversion solves the heart of the problem that Ultimate Escapes is facing at present and would not prevent a similar situation from taking place again in the future.
The club is asking members to invest capital in the firm which can later be converted into stock ownership at $3.87 per share. Unfortunately, the stock is currently hovering around the $0.60 mark, making for a rather strange "investment" for members. This conversion would also likely drive the price per share down even further.
Lastly, there is no assurance that CapitalSource will even move forward with such a plan, even if every member does approve the new club model.
This potential one-time assessment comes just 20 months after a different one-time assessment that was levied against members by Ultimate Escapes in January of 2009. Earlier this year, the club also enticed members to prepay their annual dues as part of a cash flow rebalancing, providing the club with even more capital from members. Going back to this well again is a bold, and what we believe will be an unsuccessful, gambit by the club.
We have close ties with many Ultimate Escapes members and know them to be one of the most knowledgeable groups of members in the industry. Tousignant's message of the timely nature of these dealings is accurate. Despite the short amount of time available, we implore the club to reach out to its members for their thoughts and opinions and hopefully the combined insight of club members, Ultimate Escapes, and CapitalSource can find a solution acceptable for all.
Please feel free to review our thoughts on the other four options outlined by the club here.
We are always happy to hear the thoughts and comments of our readers and want to hear from you. If you would care to discuss this plan or any other news in the destination club sector, please contact us at contribute@destinationclubnews.com to voice your opinion.
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