Sept. 20 (Bloomberg) -- Ultimate Escapes Inc., whose 1,200 members pay at least $70,000 apiece to be pampered in villas and yachts from Tuscany to Costa Rica, is headed for a getaway of its own.
The destination club filed a Chapter 11 petition today in U.S. Bankruptcy Court in Wilmington, Delaware, 11 days after Chief Executive Officer Jim Tousignant, 49, told members the six-year-old club was in default on a $90 million loan and “increasingly likely” to file for protection from creditors.
Tousignant, in an interview last week, blamed the 2008 financial crisis for the company’s woes. Ultimate Escapes raised $15 million from members in January 2009. In October, the company sought to raise $30 million in the equity market and came up $20 million short. In February, the company scrapped another public offering.
“When your cash stops flowing, your expenses don’t stop,” Tousignant said in the interview. “You’ve got staff, you’ve got properties, you’ve got fees, property taxes, mortgages that have got to be paid.”
The company listed assets of $10 million to $50 million and debt of $100 million and $500 million in Chapter 11 documents. Eighty-four affiliates also sought protection.
Tousignant, 49, says he started Kissimmee, Florida-based Ultimate Escapes after surviving the Sept. 11, 2001, attacks on the World Trade Center while working at Morgan Stanley. He previously founded and sold Multex Inc., an investment research firm. Ultimate Escapes, which went public in 2009, traded at $7.85 last October and now fetches 21 cents.
Destination clubs such as Ultimate Escapes and its larger competitor, AOL Inc. co-founder Steve Case’s closely held Exclusive Resorts LLC, offer luxury vacations, complete with in-house concierges and on-call maids, as a more upscale, convenient and varied alternative to a timeshare or second home.
“Upon entering your log home, you will be welcomed by the rustic mountain decor,” reads a description of one home, a four-bedroom house in Stowe, Vermont. “You or your Private Chef will love the Viking stove, complete with six burners and two ovens, and Sub-Zero refrigerator for creating dining masterpieces.”
That residence, along with more than 70 others and the Waldorf Astoria Hotel, are no longer available to members following the bankruptcy filing, Ultimate Escapes said today in an e-mail to members.
At Ultimate Escapes, membership starts with a $70,000 one-time payment, plus $8,000 in annual dues for a minimum of 14 days of access to $1 million residences. Prices climb exponentially for longer breaks at more expensive properties. A “Platinum PLUS” membership at Ultimate Escape’s Elite Club costs $450,000, according to the club’s website.
Industry sales rose to a peak of $610 million in 2007 from $450 million in 2004 before tumbling to $195 million last year, according to Ragatz Associates, a resort real estate consultant.
Collecting mansions around the world left some clubs with too much debt and too few fee-paying members after the bust, derailing some with a business model that relied on increasing annual fees by signing up new vacationers. At least three clubs, High Country Club LLC, Solstice LLC and the Lusso Collection, have already gone bankrupt.
Many destination clubs are structured so that members don’t own interests in the properties, according to Dan Guyder, a partner in the restructuring group at law firm Allen & Overy LLP in New York. Some clubs offer members pledged equity interests in the property-owning subsidiaries as collateral, which may have no value in a bankruptcy if property values are less than the subsidiary’s debt, Guyder said.
Like Unsecured Creditors
“The problem with destination clubs is that members don’t own the actual real estate,” said Howard C. Nusbaum, president of the American Resort Development Association. “They get treated like kings, but if the developer gets into trouble there’s no recourse. If the club goes bankrupt, members have to get in line like any other unsecured creditor.”
Some clubs, such as Equity Estates, where members own a portion of the real estate or the club itself, and the biggest membership-only group, Exclusive, are growing, said Levi Moe, founder of Destination Club News, which publishes an independent newsletter tracking the industry.
Ultimate Escapes expanded through acquisitions, collecting new properties and clients when it took over bankrupt Tanner & Haley Resorts’ brands Private Retreats, Distinctive Retreats and Legendary Retreats.
‘Vacation of a Lifetime’
In his Sept. 9 letter, filed with regulators, Tousignant said a bankruptcy was likely unless Ultimate Escapes could execute a merger, sell itself or convince customers to pay significantly more via an annual dues increase or conversion to a member-owned club. In the interview, he said his preferred option was for members to take ownership of their club, paying as much as $50,000 for equity in villas. That could raise $30 million to avert bankruptcy, he said.
Tousignant declined to identify potential partners, saying the company has spoken with “several dozen parties” in the destination club or hospitality business, as well as real estate and financial companies.
“Our mission is to continue to provide you and your family the vacation of a lifetime, every time for decades to come,” he wrote in his letter to members. “Now, more than ever, we call upon you and all our stakeholders to support our mission and embrace the vision for your club.”
The case is In re Ultimate Escapes Holdings LLC, 10-12915, U.S. Bankruptcy Court, District of Delaware (Wilmington).