By J. Scott Truby and Maria Saporta
Wednesday, January 27, 2010
Embattled Sea Island Co. said Wednesday it will hire an investment bank to review its “strategic options,” which could include new ownership for the exclusive Georgia coastal resort and community.
At a private 30-minute meeting with 500 members of the posh resort, Sea Island Chairman and CEO Bill Jones III, informed members that the company will hire a investment banking firm, and that the debt-riddled resort and golf community has reached a forbearance agreement with its lenders, including Synovus Financial Corp.-subsidiary Columbus Bank & Trust.
Under a forbearance agreement, the loan is technically in default, however, the bank has agreed to a grace period to help the borrower work through payment issues or exit. Under the agreement, the bank does not give up its rights to enforce the loan documents in full, which could include foreclosure or the pursuit of guarantors for repayment if any exist.
An attendee of the meeting told Atlanta Business Chronicle the meeting was not contentious and the company’s actions helped clarify the uncertainty that has surrounded Sea Island.
The attendee, who declined to be identified, said Jones, in his prepared remarks, told members the company is “optimistic” they will find “an investor or buyer with the financial strength to carry [the company’s] vision forward.”
The company, the source said quoting Jones, has labored to address its financial problems, “but now we know that we can’t dig out of this financial situation by ourselves.”
Georgia’s most luxurious and world-renowned resort got into trouble in 2008 after a massive redevelopment and expansion of the resort that cost more than $500 million.
But the fallout of the economy has ravaged Sea Island, the storied coastal five-star resort. Home sales plummeted and even the ultra-wealthy clientele that Sea Island coveted as guests and members stayed at home.
Last summer, the tony hotel and resort management company announced it had finalized the terms of an April 22, 2009, restructuring agreement with its lenders, and had consolidated as much as $400 million in outstanding debt into a three-year credit facility that matures in July 2012.
“Over the past year-and-a-half, Sea Island’s management and board of directors have taken decisive action to address the significant downturn of our industry and our near-term obligations to lenders,” Jones said in a statement released Wednesday by Sea Island. “Unfortunately, even as we took these prudent actions, the market deterioration continued.”
Among the possible options is a sale of additional parts or all of the club or a partnership with an investor or investment group.
The company said Wednesday’s announcement would have no impact on its posh The Cloister or Sea Island Lodge hotels or operations of the golf courses. Sea Island is set to play host to the The McGladrey Classic at Sea Island’s Seaside Course on October 7 -10. The PGA Tour, the Davis Love Foundation and RSM McGladrey have confirmed to Sea Island Co. that the tournament will continue as scheduled, the company said in its statement.
“Reaching an agreement with our lenders is an important step for Sea Island because it gives our company the necessary time to address our loan situation in an orderly manner,” said David Bansmer, Sea Island president and chief operating officer. “We expect our investment banking partner, which we anticipate will have a strong record in advising on corporate transactions, to provide us with important strategic options for consideration. Meanwhile, we at Sea Island will remain focused on what we do best – providing superior service to our members and guests.”
Sea Island officials said the company would not disclose discussions with its investment banker, which has not been named, until a deal is reached.
In November, Wells Fargo & Co. took over the deeds to its 3,000-acre Frederica golf course community on the Georgia coast and to an undeveloped 400-acre parcel on St. Simons Island. And in October, Sea Island announced it was selling nearly 18,000 acres, including land near its Cabin Bluff resort that had been slated for a massive residential and mixed-use development.
Columbus, Ga.-based Synovus (NYSE: SNV), which reports its fourth quarter and year-end numbers on Jan. 27, has held on its balance sheet since the first quarter of 2009 a $220 million loan for a resort/hotel in nonperforming status.
“Synovus and the other lenders to Sea Island Company are aware of Sea Island’s public announcement today, as the matters mentioned in it have been addressed in formal documents signed among Sea Island and the lenders,” Synovus said in a statement. “This loan relationship has been addressed by the lenders in accordance with normal processes and procedures that govern all loan workouts. While Sea Island’s decision to pursue strategic alternatives was not at the behest of its lenders, its decision was not entirely unexpected given the challenging economic environment facing the resort and real estate industry.”
In the summer of 2008, Jones, the Sea Island CEO, resigned from Synovus’ board saying it would be easier for the bank to work through the company’s credit problems without his presence on the board. Jimmy Blanchard, Synovus’ former CEO and a bank director, had earlier resigned from Sea Island’s board.
The Jones family has owned the resort since it was founded in 1928 by Jones’ grandfather and cousin with the construction of The Cloister hotel. The resort thrived despite the pressures of the Great Depression and World War II.
Jones, in a speech to the Rotary Club of Atlanta on Nov. 26, 2007, said the company’s vision was to create the finest resort on Earth.
But by the mid-1980s, Sea Island was facing competition from The Ritz-Carlton Co., Four Seasons Hotels and Resorts and other developers. “All of a sudden we found ourselves where there was a fine hotel on every nice beach in the world,” Jones said in his Rotary Club speech.
So the company created a new vision for itself and launched a renovation and expansion that lasted from 1998 to 2006. By 2007, everything at the resort was either brand-new or completely refurbished.
The company also began to focus on its real estate business. Among other projects, it developed Frederica, a 3,000-acre community limited to 400 to 500 single-family homes on the north end of St. Simons Island.
But to fulfill that dream, Sea Island Co. took on tremendous debt. That, coupled with cost overruns on the resort, residential properties that were overpriced, the tanking of the housing market and then the general economic collapse, has placed a tremendous financial strain on Sea Island.
One of Sea Island’s problems, sources say, is the redevelopment of the resort ended up costing about a third more than originally projected. It also is estimated that the cost per hotel room ended up being at least $1 million. A typical five-star quality hotel can be built for around $400,000 a key depending on land costs, sources within the hospitality community say.