Financial giant Credit Suisse is defending its US$375 million loan to a now-bankrupt Montana resort for the rich, saying it was a legitimate transaction that reflected standard lending practices at the time.
Creditors for the Yellowstone Club claim the loan was fraudulent.
They say Credit Suisse was peddling dangerous loans that relied on faulty projections about revenue and the asset’s market value.
Steven Yankauer, a senior officer with Credit Suisse, testified on Tuesday there was no way the club’s financial demise could have been foreseen, especially considering it was valued at about US$470 million even into last year.
At the time of the loan in 2005, credit markets were so liquid that lenders were clamoring to invest in the club, Yankauer said.
“Capital was extremely free flowing and available,” he said of investor interest in the ritzy resort in southwest Montana.
Yellowstone Club attorney Troy Greenfield grilled Yankauer on Tuesday about how a huge international banking group could have overlooked the resort’s serious cash flow problems. He also suggested that greed led the firm to look the other way.
Credit Suisse, which made similar loans to five other posh resorts that have since defaulted or declared bankruptcy, received about US$7.4 million in fees from the transaction.
The Yellowstone Club declared bankruptcy in November, after Edra Blixseth took over its ownership from her former husband Tim Blixseth.
The resort’s Chapter 11 bankruptcy trial now pits the divorced couple against each other. On one side, stand Credit Suisse and Tim Blixseth, who claim the loan was legal. And on the other are Edra Blixseth and a group of creditors, asking the judge to rule the loan should not have to be repaid.
An auction for the club began on Wednesday and concludes May 13.
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