Sunterra under big pressure to sell

[timeos2 Senior Member Find all posts View Profile Close timeos2]

An article from the Friday Las Vegas Review-Journal doesn't sound upbeat.

[riverdees05 Platinum Contributor Find all posts View Profile Close riverdees05]

Hope if they sell, they get a good buyer for the US part. I own two weeks at Lake Tahoe and would hate to see the value go down.

[Ryne08 Senior Member Find all posts View Profile Close Ryne08]

Rumor back in April 06 a major hotel chain was looking to buy Sunterra USA part. This was a saleperson talking.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

Rumor back in April 06 a major hotel chain was looking to buy Sunterra USA part. This was a saleperson talking.

If there's any truth to that, the hotel chain is probably Radisson. Radisson and Sunterra have been dancing togther for about five or six years, but never consummated anything.

[mshatty Super Moderator Find all posts View Profile Close mshatty]

IF, and that's a big IF, Sunterra is going to be sold, any SMART buyer will require Sunterra to go into bankruptcy and have the bankruptcy court approve a sale so that the purchaser will not have all of the claims and other litigation stuck to the assets being sold.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

IF, and that's a big IF, Sunterra is going to be sold, any SMART buyer will require Sunterra to go into bankruptcy and have the bankruptcy court approve a sale so that the purchaser will not have all of the claims and other litigation stuck to the assets being sold.

Except that Sunterra isn't bankrupt and isn't in any imminent danger of needing to file for protection.

Note that the pressure to investigate selling isn't coming from creditors; it's coming from investors - i.e., the people who come out on the short end if a bankuptcy petition is filed. So, it would be completely asinine for an investor group to force the issue if th sale had any chance of fomenting a bankuptcy,

The investor group is in no way asserting that Sunterra is not a viable operation. In fact they are saying exactly the opposite - it is viable, but that the stock price is depressed because of lack of investor confidence in current management. Accordingly, as a viable entity, it would be worth more in different hands, whether that was an intact sale or a sale by breaking it into pieces.

****

Note that if Sunterra were sold, what would be sold is unsold inventory, management contracts, and the brand name (as of that has much value). Onwerships that are in the Sunterra trust or that are deeded are not part of Sunterra's assets.

[mshatty Super Moderator Find all posts View Profile Close mshatty]

Steve,

It doesn't matter if Sunterra is bankrupt or not. The bankruptcy laws don't require that. The bankruptcy laws do allow a company to go into a Chapter 11 bankruptcy, propose a plan to sell all of its assets free and clear of claims and interests. Many companies do this as part of a sales transaction.

With the delisting of its stock and potential stockholder and customer lawsuits sitting out there, any smart buyer will require Sunterra to file the bankruptcy and get an order from the bankruptcy court that approves the sale to them and cleanses the assets from the potential claims. Then the potential claims attach to the sale proceeds. Otherwise, who would want to buy Sunterra and all of the potential litigation?

Voila, new owner without the baggage.

[mshatty Super Moderator Find all posts View Profile Close mshatty]

Steve,

You are right that the investors of Sunterra do not want a bankruptcy because they most likely would lose everything.

I don't know all that much about Sunterra and its finances. But if I were a purchaser I would have to evaluate the potential claims I would be buying. If they were too much for my blood, but I still wanted the assets, I would require the bankruptcy to clean it up.

Now, the other complicating factor is that I am contemplating US laws. If Sunterra is under another country's laws, then please disregard anything I have posted.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

Steve,

You are right that the investors of Sunterra do not want a bankruptcy because they most likely would lose everything.

I don't know all that much about Sunterra and its finances. But if I were a purchaser I would have to evaluate the potential claims I would be buying. If they were too much for my blood, but I still wanted the assets, I would require the bankruptcy to clean it up.

Now, the other complicating factor is that I am contemplating US laws. If Sunterra is under another country's laws, then please disregard anything I have posted.

The potential claims are just part of the liabilities, and buyers simply discount the purchase price to reflect any liabilities they are acquring with the transaction. As to shareholder and customer liabilities, my experience has been that it's pretty easy - even routine - to structure purchases so that buyers are totally insulated from those types of liabilities.

******

I have been involved in lots of asset sales with multimillion dollar contingent liabilities for environmental cleanup and remediation or with pending environmental enforcement cases with uncertain outcomes. I have advised both buyers and sellers of my opinion as to the probable remedial costs and the timing of cash outlays. I have provided advise to buyers on the environmental risks associated with buying assets out of bankruptcy - both Chapter 11 and Chapter 13.

I have seen many cases where prices are negotated downward. I've seen lots of cases where buyers walk away after receiving enviironmental due diligence reports. I've seen cases where environmental liabilities drove companies into bankruptcy.

From a buyer's standpoint, I can see hypothetically see that if a company is counting on asset sales to forestall Chapter 11 or Chapter 13, it may be worthwhile to move the seller in that direction. But in reality I've seen situations where buiyers were anxious to close a deal before the seller was forced into bankruptcy because they didn't believe they could get as good a deal in open auction as they would be able to negotiate with the company right now. When a company is bleeding cash and trying to stave off creditors, you can often negotiate a better price if you agree to front end load the transaction. If you wait to go to through a situatio nwith court oversight, you may not have the same leverate in negotiating a transaction.

******

I've been involved in lots of deals where asset sales were structured so that buyer was immune from acquiring stockholder or customer liabilities. In my experience, it's pretty easy for the M&A lawyers to structure deals as brick-and-mortar transactions so that a buyer acquires only the assets and none of the liabilities (except for environmental liabilites, which by law attach jointly and severally to all owners of the property, and can't be discharged even by a bankruptcy court). In fact, I've done a number of facility repermitting projects triggered simply because the deal was a "bricks and mortar" sale, not a sale of an ongoing entity (Many permits attach to the operating entity, not the physical plant. So if you sell the plant but not the operating entity, the permit can't be transferred to the new owner.)

**************

But I've not worked with any situations where someone went into Chapter 11 when they weren't facing liquidity issues. Maybe it happens in other types of deal making that I don't get involved with. But again, my experience has been that doing deals to isolate issues such as shareholder, customer and employee lawsuits is a retty routine task for the M&A lawyers.

Most of the companies I've worked with are buying the assets they've asked me to look at for them because they believe they can make a good rate of return on the investment right now. So they are much more interested in getting a deal closed now instead of two or three years from now. In fact, almost everybody I work with expects to recover all of their invested capital in about three to five years, because that's about as far out as they feel comfortable making business projections. Losing two years of project life is almost always sufficient to shelve a project entirely.

****

I do see the points you are making. But in the situations I've worked with where those same types of issues were present, it simply hasn't been necessary to resort to Chapter 11 or similar devices to insulate buyers from those liabilities. It seems an unnecessary complication in the sale, creating additional operating expenses and injecting the uncertainty of what might happen when the company is placed inder court oversight.

Putting a company in Chapter 11 will also cause many suppliers to alter their terms of sale (typically requiring cash payment before deliivery of goods). Futher, many loan agreements place borrowers in immediate default, with all amounts owed immediately due and payable, if a company files under Chapter 11.

*****

It seems to me like a lot of extra hassle for something that in my experience is easily managed outside the bankruptcy laws.

[mshatty Super Moderator Find all posts View Profile Close mshatty]

Steve,

All of your points are valid and the most likely scenario. I'm just saying that a bankruptcy proceeding to cleanse assets is a real possibility.

I just completed a multi million dollar sale of some restaurants in Houston through a bankruptcy case. It was really not necessary but the buyers wanted that way. No bankruptcy order, no sale. It took about 6 months to complete. However, the case I was involved in was not subject to an open bid procedure that can occur as you pointed out in most bankruptcy cases .

I know that M&A lawyers can set up a corporate labyrinth to try to shield assets from liabilities. But such a labyrinth is potentially subject to a fraudulent transfer causes of action. Happens all the time. That is where the "good housekeeping" bankruptcy order gives a complete clean title and trumps the M&A lawyers.

[T. R. Oglodyte Moderator Find all posts View Profile Close T. R. Oglodyte]

I know that M&A lawyers can set up a corporate labyrinth to try to shield assets from liabilities. But such a labyrinth is potentially subject to a fraudulent transfer causes of action. Happens all the time. That is where the "good housekeeping" bankruptcy order gives a complete clean title and trumps the M&A lawyers.

In the cases I've been involved with there's no "corporate labyrinth". It's usually just the difference between a "bricks and mortar" deal vs acquisiton/merger of an operating entity.

Both have advantages and disadvantages. One of the advantages of a "bricks and mortar" deal is that, absent it somehow being classed as a fraudulent transfer of assets, the purchaser does not assume any of the corporate or enterprise liabilities of the previous operation. Almost any "arms length" transaction among unrelated parties will avoid a fraudulent asset transfer.

******

Let's say you were a operating a taxi company, and I wanted to buy you out. Now let's say that a couple of months ago one of your drivers was involved in a collision that caused serious long term injuries to passengers in your taxi and in the other vehicle. Further, your driver was probably at fault. The lawsuits are starting to be filed, and your insurance isn't going to cover it.

If I buy your taxi company, I buy the lawsuits as well. But if I simply buy your fleet, all I now own is the vehicles. I don't assume the liabilities for the lawsuit. But, I probably need to get new medallions, since the medallions are issued to your taxi company, not to the vehicles. The only way I could get the medallions is to buy the company.

*******

Now let's change things a bit. Let's say I'm your brother-in-law, and you sell me the cars for a fraction of their true value - maybe with no money down and a ten year payback period at no interest. All of the drivers move over to my new taxi company, and I hire you as the manager of my new taxi business. Meanwhile, without cabs yoiur former business is not viable, expecially with the pending legal bills. So you put your previous company into bankruptcy.

Now there's a good case that this was a fraudulent transfer of assets.

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

There has been a lot more discusion of these issues on the Sunterra board at www.timesharetalk.co.uk . Among those posting there is Ian Podesta, the former Sunterra exec turned whistleblower who has had a big role in stirring this pot.

The word is that the most likely buyer of the European operations is Club La Costa.

[Ryne08 Senior Member Find all posts View Profile Close Ryne08]

In reading the lawyer documents file against Sunterra it read as if the whistler blower may had prior knowledge of the reporting problems by upper management as early as 2003. Could the whistler blower be held liable for not reporting the problem earlier to the SEC?

[Carolinian Super Moderator Find all posts View Profile Close Carolinian]

Another major shareholder demands Sunterra sale

Third Point LLC, owner of 1,925,000 shares of Sunterra, almost 10% of the company, has joined the ranks of major Sunterra shareholders demanding sale of the company in a letter to the Sunterra board dated July 17, 2006. Third Point wrote that they ''demand that you devote your full resources and attention to selling Sunterra''.

They also note that major stockholders with over 25% of Sunterra's stock have now gone public with demands that the company be sold, and it only takes 20% to call a special meeting to remove the directors.

The entire letter is posted on the Sunterra board at TimeshareTalk.

[Ryne08 Senior Member Find all posts View Profile Close Ryne08]

Ms C. can you seen a message to Sunterra Timeshare Talk BBS that Sunterra (SNRR) stock is now trading at $11.82 Last/NAV price as of Friday 7/28/2006 and not at $8.32? Thanks