Nov. 14 (Bloomberg) -- The Yellowstone Club, a gated ski retreat for millionaires in the Montana Rockies, won approval to take an emergency $4.5 million loan after declaring bankruptcy earlier this week.

U.S. Bankruptcy Court Judge Ralph Kirscher in Missoula allowed the cash-strapped club to borrow money from Credit Suisse Group of Zurich and stay open for the next three weeks as it prepares for ski season. The club has a private ski area with 13 lifts.

Without the loan, the Yellowstone Club wouldn't have been able to make its next payroll or cover its utility bills, said Edra Blixseth, who co-founded the club with her husband Tim Blixseth in 2000. She took control from Tim earlier this year after a litigious divorce.

``Employees were actually paying for things on their personal credit cards,'' Edra said during the two-day hearing. ``It was more of a mess than I knew.''

Like many American homeowners and businesses, Yellowstone Club borrowed heavily when times were good. In 2005, it took a $375 million loan from Credit Suisse. Investors in the club, led by cyclist and club member Greg LeMond, alleged in a 2006 lawsuit that the Blixseths took $209 million of the loan and spent it on things beyond the club, including a $28-million private island in Turks and Caicos. LeMond and the club settled the case earlier this year.

Most of the club's revenue came from real estate sales. Those declined as the U.S. economy deteriorated. The club still owes Credit Suisse $307 million.

Gates, Quayle, Greenhill

Members of the club include Microsoft Corp. founder Bill Gates, former Vice President Dan Quayle, and Robert Greenhill, founder of investment bank Greenhill & Co. They put down a $250,000 deposit to join the club, which is located 20 miles (32.2 kilometers) north of Yellowstone National Park near Montana's Big Sky ski area, and pay $18,000 a year in dues to help keep the lifts running and the grass mowed on the 18-hole golf course.

Kirscher said he approved the loan reluctantly because it keeps the club going for just three weeks. ``If I don't sign this, the debtor has no finances,'' Kirscher said.

In court, a group of members opposed the new Credit Suisse loan, saying that it amounted to usury because of high fees. The interest rate is 15 percent, they said. Adding in fees of $200,000, allowances for legal fees of $742,000 and $150,000 for a chief restructuring officer, the annualized interest rate would be 425 percent, the members' group said in an objection filed with the bankruptcy court.

`Indefensible'

``This is indefensible,'' the members wrote.

The members group said Edra Blixseth should have given more consideration to a competing loan from CIP Yellowstone Lending LLC, a company run by Yellowstone Club member Sam Byrne, founder of CrossHarbor Capital Partners LLC, a Boston-based private equity fund.

CIP Yellowstone Lending offered the club $18 million for 13 weeks, the members' group said, buying Blixseth more time to reorganize the club or find a buyer.

Blixseth, accompanied to court by her boyfriend, former soap opera star Jack Scalia, said the loan from CrossHarbor would require a sale of the property at the end of the loan period, or by Feb. 13, 2009. To do that, she'd have to put it on the market immediately, which would mean shutting down during her busiest time of year.

CrossHarbor wanted to charge her 17 percent interest, Blixseth said. Credit Suisse's loan ``was in the best interest of the Yellowstone Club and the safest way to protect everything,'' Blixseth said, chewing gum throughout the three- hour proceeding on Wednesday.

History

CrossHarbor has a history at the club. It developed a cluster of townhouses there called Sunrise Ridge and earlier this year considered buying the whole club.

Credit Suisse's lawyer, Mark Chehi, said the company's offer was fair. ``You can't get financing anymore,'' he said. ``These types of arrangements are not obscene, they're not unfair. Especially since, when the music stops at the end of three weeks, the money might not be there.''

The members' group also questioned what had become of the proceeds of the Credit Suisse loan, and the $88 million of membership deposits, the interest on which was supposed to help fund club operations.

``Had the funds been properly used, it is likely that the debtors would not find themselves in the position they do today,'' the members' group wrote.

The case is In re Yellowstone Mountain Club LLC, 08-61570, U.S. Bankruptcy Court, District of Montana (Butte).

To contact the reporter on this story: Anthony Effinger in Portland, Oregon, at aeffinger@bloomberg.net

Last Updated: November 14, 2008 00:01 EST