ASC moves to protect bonds in case troubles arise

— American Skiing Co. raised the specter of its real estate division confronting bankruptcy in documents filed with the U.S. Securities and Exchange Commission April 23.

However, an ASC executive said Friday the potential for the real estate division entering bankruptcy is only germaine if viewed in the long term and not in the short term.

ASC, owner of the Steamboat Ski Area, missed a mid-April deadline to make interest payments to one if its biggest lenders. Company officials subsequently sought and gained approval for concessions from a second creditor, The Bank of New York. Specifically, ASC sought to protect bonds supervised by the bank from acceleration or foreclosure in case troubles on the real estate side deepen.

One of those sources of difficulty mentioned in the SEC filing is the bankruptcy or liquidation of a real estate subsidiary. However, ASC's Chief Financial Officer Mark Miller said Thursday the filing should not be construed to mean the company is planning to taking its real estate division into chapter 11.

"This was not done in contemplation of an imminent event," Miller said.

Instead, he said, last month's filing was a move to clean up a lingering source of difficulty with the company's creditors.

"The primary element here is really a step to simplify our capital structure," Miller said.

American Skiing Co. is structured to include two distinct divisions, one for its resort operations and the second for its real estate developments.

The text of a "form 8K" filed with the SEC this week shows that ASC did not make an interest payment due Textron Financial Corporation, one of its primary lenders, on April 15. That event apparently triggered the filing with the SEC April 23.

The Bank of New York is the trustee for $120 million of 12 percent senior subordinated notes, or bonds, which come due in 2006.

ASC went to the Bank of New York seeking permission from a majority of bondholders to restructure the terms of the notes. They asked the bondholders to waive the foreclosure provisions tied to other loans.

The filing goes on to seek protection of the bonded indebtedness in the case that any of ASC's real estate subsidiaries fails.

Finally, the amendment to the bonded indenture includes a provision that would protect ASC from default proceedings in the case of voluntary or involuntary bankruptcy or liquidation of a real estate subsidiary.

That provision that would have allowed The Bank of New York to put ASC in default is called a "cross default provision." Miller said almost all of ASC's credit facilities (loans) are structured so that loans on the resort side are independent of loans on the real estate side. Another way to express that would be to say that most of ASC's real estate loans are "non-recourse" to the resort side of the company.

Miller said the bonds for which The Bank of New York acts as trustee were put in place before ASC's real estate company existed as a separate company or division.

Brad McCurtain, president of Maine Investments in Portland, specializes in tracking the fortunes of companies based in his state. He theorized the SEC filing by American Skiing could be a move to isolate its hotels like the Steamboat Grand and let that portion of their assets go.

"They might be looking to throw it out there and let it go let the creditors have it, if they want it," McCurtain said.

Miller said ASC has since made the April 15 real estate interest payment due Textron Corp., solving the original problem. But the company has wanted to disentangle itself from the cross default provision on the $120 million in bonds.

"It's always a little bit troublesome," Miller said. He explained that when he approaches lenders for money on the resort side of the business, they are pleased to hear the two divisions aren't cross linked, but then he has to bring up the $120 million in bonds, and that becomes a stumbling block.

Miller said it would be incorrect to conclude from the fact that ASC missed the April 15 interest payment that the company came out of the recently ended ski season with insufficient cash to meet that obligation. The interest payment was on a loan tied to ASC's real estate division. It would have been illegal to use cash generated by the resort side to pay off the real estate interest, Miller said.

Miller added that similar to last year, a $90 million credit facility is in place to operate the company's ski areas in aggregate during the summer and fall, when they generate insignificant cash flow. There is adequate funds to meet Steamboat Ski Area expenses this offseason, he said. And Miller said the anticipated closing on the sale of Heavenly, Calif., to Vail Resorts in June will make the $90 million go further.

McCurtain said ASC is in a difficult position in 2002.

"The company right now is really fending off the creditors," McCurtain said. "This is a big year for debts that come due. I don't see how they're going to do it. The company obviously thought it would get a higher price for Steamboat."

Miller said it is incorrect to say ASC has major loans coming due this year. He said the company's due date on its first big resort credit facility isn't up until 2006.

McCurtain believes ASC's business plan was flawed from the beginning. Acquiring ski areas and heavily leveraging them to fund a quartershare real estate venture wasn't a sound plan, he said. He pointed to ski resorts' dependence on the vagaries of winter weather and the fact that they don't produce significant revenue for more than half of the year.

Whatever happens with ASC in the near term, McCurtain doesn't foresee that a bankruptcy would result in its ski areas failing to open. A bankruptcy trustee wouldn't let that happen, he said.

"I don't see any circumstances why resorts wouldn't open," McCurtain said. "That's their sole source of cash flow. That's a pretty difficult scenario to imagine."

Miller said it's not out of line to conclude from last month's SEC filing that bankruptcy is one of the events document takes into consideration. But again, he stressed bankruptcy isn't imminent.

"It's not a farfetched notion as long as you consider it in the long view," Miller said. "That's the idea behind this (effort to remove the cross default provision). If one goes down, it won't have an impact on the lenders to the other company."

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