February 8, 2013
FDIC wants Greek Peak cuts
Government seeks changes to resort’s bankruptcy terms
SYRACUSE — The terms of Greek Peak Mountain Resort’s Chapter 11 bankruptcy will continue through Feb. 17, but are expected to see significant changes as the Federal Deposit Insurance Corp pushes bank account sweeps, new financial auditors and a 10 percent reduction in the resort’s expenses, officials said Thursday at a hearing.
Another hearing in federal Bankruptcy Court will be held 11 a.m. Thursday to see which, if any, of the changes will be made.
The 10 percent reduction in expenses could include job cuts, said Jeremy Johnson, a lawyer with New York City-based McDermott, Will & Emery representing the FDIC.
“I think you’re getting off easy,” Federal Bankruptcy Court Judge Margaret Cangilos-Ruiz said Thursday, noting that typically a reduction of 25 percent is required.
At a hearing Thursday, the FDIC proposed to sweep the resort’s bank accounts clean of all excess cash after payroll and expenses are paid, leaving a $50,000 cushion, and using that money to pay down Greek Peak’s $2 million loan.
That money would be available to be borrowed back the next week if necessary, said Johnson.
The sweep would only occur on weeks where the resort predicts a positive cash flow, he said.
“Frankly, this is a critical issue for the FDIC,” Johnson said.
Greek Peak received $204,454 from a $400,000 line of credit from the FDIC on Dec. 18, on top of a $1.8 million loan approved on Sept. 11.
The resort and the FDIC both stated in court that Greek Peak did not need the balance of the December line of credit, and the FDIC proposed ending that line of credit.
Initial financial forecasts the FDIC saw in July when it was reviewing financing for Greek Peak indicated that the FDIC would be able to recoup $2.5 million by March 31, Johnson said.
Now the FDIC only expects to recover $1.65 million, sustaining a loss of $700,000, he said.
While the ski season has been better this year than last year’s season, which was plagued by unseasonably warm weather, sales are not up to historical levels, said Johnson, noting that climate change has contributed to the downturn.
The recent economic recession has also played a role, noted Cangilos-Ruiz.
Gary Leibowitz, a lawyer with Cole Schotz representing the unsecured debtors committee in the case, argued against the bank account sweeps, saying the FDIC was trying to take improper control and was thinking only of its own good.
“There is a belief that they’re exercising too much control for their own benefit,” said Leibowitz during a court recess, who noted that decisions in Chapter 11 bankruptcy are supposed to be made for the good of all parties concerned.
The FDIC also pushed to terminate American Resort Management LLC of Erie, Pa., as the financial monitoring service for Greek Peak during its bankruptcy, seeking instead to hire BDO Consulting, an arm of BDO Capital Advisors, LLC.
Cangilos-Ruiz granted the termination of American Resort Management, whose contract goes through February, and allowed BDO to be hired on an interim basis for next week.
The FDIC had been impressed with BDO when it created the budget templates used in the resort’s bankruptcy accounting, said Johnson.
Greek Peak was anxious to make the FDIC comfortable with an auditor, but was concerned by the price increase in switching from American Resort Management to BDO, said Wendy Kinsella, a lawyer with the firm Harris Beach based in Syracuse representing the resort.
American Resort Management’s services cost $6,000 a month, while BDO would cost $4,000 a week, Kinsella said.
“The person who’s actually paying for it is the FDIC,” said Johnson. “The FDIC is willing to pay it.”
Suggestions from the FDIC on how to reduce expenses have met with resistance from Greek Peak’s management, Johnson said, and the FDIC wants to stop giving advice and have BDO find fat in the operation and cut it.
BDO was also credited with finding a potential purchaser for the resort. Around 20 groups have asked for purchasing information for the Virgil resort, which includes the ski center, Hope Lake Lodge and adventure center, said Greek Peak President Al Kryger after the hearing, and four or five have come to inspect the resort.
The groups are typically equity and investment funds, some of which already own resorts, said Kryger.
The FDIC also proposed eliminating a miscellaneous expenditures category from the resort’s budget.
To read this article and more, pick up today's Cortland Standard
Click here to subscribe