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Carlile to sponsor Cliffs Club plan

by Allison Collins | Published April 24, 2012 at 1:14 PM

Carlile Development Co. LLC is set to win ownership of Cliffs Club & Hospitality Group Inc.

According to debtor counsel Gary Marsh of McKenna Long & Aldridge LLP, the stalking horse was the only bidder at a Monday, April 23, auction to sponsor a reorganization plan for the Travelers Rest, S.C., residential community developer.

"No other qualified bidders showed up for the auction," Marsh said.

Judge John E. Waites of the U.S. Bankruptcy Court for the District of South Carolina in Spartanburg is scheduled to preside over a sale hearing on May 8. Waites approved bidding procedures for the equity sale on March 16. On the same day, he approved a $7.5 million debtor-in-possession loan from Carlile.

Under the bidding procedures, if Carlile didn't win the auction, it would have received a $1 million breakup fee and $750,000 in expense reimbursement.

Competing bidders had to offer at least the amount outstanding on Cliffs Club's DIP loan and match the payments under the stalking-horse bid proposal, plus the breakup fee and expense reimbursement. Competing bidders also had to provide a $1 million deposit.

Through the plan sponsor agreement, Carlile will assume the amount outstanding on Cliffs Club's senior secured notes -- $72.22 million as of the Feb. 28 petition date; pay all administrative, priority and mechanics' lien claims in full; provide a 75% recovery to unsecured creditors; reject club member contracts; and invite the members to join a new club for a transfer fee. In addition, the sponsor will set up a litigation trust holding $100,000 in cash to fund avoidance actions and causes of action. Prepetition equity holders will be wiped out. In exchange, Carlile will receive substantially all of the debtor's assets.

The debtor hasn't yet filed a reorganization plan with the court based on the deal, but Cliffs Club plans to file one by May 13.

Cliffs Club, a developer of luxury residential and golf communities in the Carolinas, filed for Chapter 11 on Feb. 28 with 10 affiliates, including parent CCHG Holdings Inc., after it could not find an investor for its business. Waites approved joint administration of the cases on March 5.

Over the past two years, Cliffs Club employed five different investment banks to find potential investors to infuse the company with new capital, as either debt or equity. Despite 40 nondisclosure agreements and significant business discussions with various parties, none of the parties stepped forward to provide capital, court filings said.

The debtors own and operate eight exclusive private membership clubs in North and South Carolina.

The first Cliffs community opened in 1991, and the company has since become a collection of eight premier, private, master-planned residential communities, encompassing 23,000 acres and more than 9,000 units. The debtor markets to affluent move-up, preretirement and retirement buyers. Its golf courses have been designed by Jack Nicklaus, Tom Fazio, Ben Wright, Gary Player, Tiger Woods and Tom Jackson.

According to court filings, Cliffs Club has sold 3,734 lots. There are 1,38 finished homes and 63 under construction throughout Cliffs Club's communities, but not all of the homes are owned by the debtors.

Its eight clubs have 2,280 members.

The debtor had $29 million in revenue in 2011. It listed its assets at $175 million and its liabilities at $333 million in court papers.

Nondebtor Cliffs Communities Inc. owns CCHG.

J. Michael Levengood and Bryan E. Bates of MLA and Dana Wilkinson of the Law Office of Dana Wilkinson are also debtor counsel. Katie S. Goodman of GGG Partners LLC is chief restructuring officer.

Jonathan B. Alter of Bingham McCutchen LLP and sole practitioner John B. Butler III represent the official committee of unsecured creditors.

Bill Rothschild of Ogier, Rothschild, Rosenfeld & Ellis-Munro PC and Julio E. Mendoza Jr. of Nexsen Pruet LLC are counsel to Carlile.

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