Sea Island files Chapter 11
By Douglas Sams and Maria Saporta
Tuesday, August 10, 2010 | Modified: Thursday, August 12, 2010
Tony Southeast Georgia resort Sea Island Co. became one of the state’s highest profile casualties of the economy and real estate crash late Tuesday, filing for Chapter 11 bankruptcy, listing at least 1,000 creditors that are owed up to $1 billion.
The bankruptcy coincides with an agreement to sell its assets to New York-based Avenue Capital Corp. and Los Angeles-based Oaktree Capital for $197.5 million. They beat almost 80 other suitors, including three with which Sea Island negotiated agreements. It decided OakTree Capital Management LP and Avenue Capital Group “presented the best recovery for all shareholders,” according to the filing.
Largest unsecured creditors include Dennie McCrary, Sea Island former president and chief operating officer, who is owed $27 million; PBGC, or the Pension Benefit Guaranty Corp., owed $13 million; David Everett, past Sea Island president, owed $3.6 million; Matthew Hodgdon, senior vice president and chief financial officer of the Georgia Aquarium; Edward Wright, former head baker of Sea Island.
Creditors also include Columbus, Ga.-based Synovus Financial Corp. (NYSE: SNV), Bank of America Corp. (NYSE: BAC) and the Bank of Scotland PLC.
In financial statement included in the bankruptcy filing, Sea Island Co. said it lost almost $78 million in 2009 and nearly $97 million in 2008. It posted 2009 revenues of $267.6 million and $287.4 million in 2008.
Sea Island owns and operates two member clubs: Ocean Forest Golf Club (530 members) and Sea Island Club (2,900 members). Sea Island employs 1,400, including 80 executives that reside in corporate offices and more than 1,000 others involved in the operation of hotels, golf courses, clubs, related amenities and real estate operations. It was undermined by the coincidence of big ambitions and poor timing.
It used long-term financing and cash flows, primarily from real estate sales, to fund expansion and renovation. It believed it would have “sufficient resources” to repay its debts, based on profits from its new luxury real estate resort and sustained real estate sales, according to the bankruptcy filing.
The expansion, however, proved more costly than expected, and the resort failed to generate the profits once projected, the filing said. In 2008, Sea Island management “took aggressive steps,” to deal with operating losses, but “because the debtors’ business model was predicated on the ongoing development and sale of residential real estate in and around their resort communities, the historic collapse of the global financial and real estate markets had a dramatic negative impact on both the debtors’ resort and real estate businesses.”
The fallout of the Great Recession ravaged the storied coastal Georgia five-star resort, which laid off hundreds of employees over the past two years.
Sea Island Co. went into default on at least $400 million in debt outstanding from a massive renovation of its Cloister and Lodge hotels and residential developments including Frederica, a 3,000-acre community limited to 400 to 500 single-family homes on the north end of St. Simons Island.
Sea Island tried to restructure, and as early as July 2009 reached an agreement with lenders, led by Synovus, to restructure debt that had matured in January of that year.
In November, Sea Island reached an agreement with Wachovia to give the Frederica development back to the lender. Sea Island Co. also recently sold more than 17,000 acres for $57 million.
Despite those moves, the real estate markets did not recover enough. In late 2009, Sea Island determined that selling its assets would offer “the best recovery for all of their shareholders,” the filing said.
Sea Island retained Goldman, Sachs & Co. to market the assets.