Company rocked by finacial woes

Anaylists say American Skiing should pray for snow next winter and the year after that

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— Another snowstorm was pounding New England on Friday, with 20 inches of fresh snow on the ground in Vermont, where the American Skiing Co. operates the Killington ski area.

Abundant snowfall at its resorts in New England, Colorado (including Steamboat), Utah and California may be all that stands between American Skiing and fiscal doom, according to at least one investment analyst that follows the company.

"I have a model that shows the company being just able to meet its obligations over the next three years," Phelps Hoyt said Friday. "But that assumes a winter like we just had in New England."

Hoyt tracks junk bonds for KDP Investment in Montpelier, Vt. His interest in American Skiing stems from $120 million in 12-percent senior subordinated bonds the company issued.

The credit ratings on those bonds have been placed below investment grade by both Moody's and Standard and Poor's.

American Skiing has undergone a tumultuous two weeks, with the planned merger with MeriStar Resorts falling apart, and its chairman and CEO, Les Otten, resigning March 28.

The two events in tandem are raising concerns on Wall Street.

Stacy Bingler Forbes, a leisure analyst with Janco Partners Inc., said the fact that American Skiing remains highly leveraged and recently had its debt downgraded is undermining confidence in the company's financial stability.

She was quoted in an article released by the news agency, Reuters, this week.

Even with ample snow during the next 36 months, Phelps isn't certain American Skiing can meet its goals of de-leveraging hundreds of millions of dollars in real estate debt without some help.

"I show them digging, but not digging out," Hoyt said. "The company won't make it on its own. They probably will not be able to reduce their leverage over the next couple of years," unless they make dramatic progress in real estate sales of both developed properties and undeveloped land.

Real estate is American Skiing Company's strong suit, and it might succeed if the resort side of the business can manage to avoid posting losses that will drag the company deeper into debt, he said.

"The real kicker to this company is real estate and how does real estate perform?" Hoyt said.

Steamboat Springs City Council President Kevin Bennett said he believes Otten paid too much for Steamboat and other ski areas, and it was precisely Otten's philosophy of recouping that investment through aggressive real estate development that got American Skiing in trouble.

"That worked in the east, but (in Colorado) that hasn't compensated for a decline in resort revenues," Bennett said.

Bennett said Otten's departure from American Skiing didn't surprise him. Anytime a company goes public at $18 a share, and less than four years later it's trading at $1, the board of directors is going to look at the CEO, he said.

Bennett said the amount of money American Skiing paid for Steamboat and Heavenly Valley, Calif., in a joint purchase from the Japanese owners, Kamori Kanko Ltd., reminded him of the exorbitant sums being paid for major league sports franchises.

"That's an expensive sport usually reserved for quite wealthy individuals who wish to own sports franchises and gain notoriety as opposed," to making the purchase based on realistic expectations about the company's bottom line, Bennett said.

American Skiing purchased Steamboat and Heavenly, along with Sabal Point golf course in Orlando, Fla., on Nov. 12, 1997, for $300.5 million. Later, the company unloaded Sabal Point for close to the $5.8 million it was valued at.

The prospectus for the now moot merger with MeriStar reveals that American Skiing acknowledged it had overpaid for the two ski areas.

In a balance sheet detailing the transaction, the company allocated$60 million of the purchase price to "goodwill" and another $22 million to "intangible assets." Essentially, the company was acknowledging it bought that much "blue sky" along with the real property and tangible assets, when it purchased Steamboat and Heavenly. Coincidentally, Phelps also used the sports team analogy to describe Steamboat's value. He speculated that divestiture of existing assets like one or more of its ski areas, is another way American Skiing could accelerate de-leveraging of its real estate debt.

"I suppose a ski area with a big name like Steamboat's would have some trophy value, similar to that of a sports franchise," Hoyt said.

However, Hoyt doubts that Oak Hill Capital partners, American Skiing's majority shareholder, is interested in selling off key assets.

"Divesting is not in their profile," Hoyt said. "I think they'll keep their resorts assets together."

Oak Hill assumed majority status in the company in August 1999 when it provided American Skiing with an infusion of capital in the form of a $150 million loan.

Oak Hill will have much to say about the future of the company, Hoyt said. Bankruptcy is a possibility, but only if Oak Hill sees an advantage in that route.

"I don't think it makes sense yet," Hoyt said. "I think the company is going to struggle through, and not going to go bankrupt."

American Skiing's new CEO, B.J. Fair, has been with American Skiing for 12 months and comes from a background that includes two theme park industry giants, Universal Studios and Disney.

He alerted stock analysts this week that the company's resort cash flow is likely to be at or slightly below the low end of the previously forecast range of $50 to $60 this year.

The fiscal year has four months remaining.

American Skiing finished fiscal 2000 with a lost of $32.2 million and posted a loss last quarter despite record revenues.

Fair has made it clear that controlling costs at its resorts is part of the company's recovery plan. Among four primary goals he listed upon assuming the helm of the company, was "Improving cost management at both the resort and corporate levels in the coming months."

American Skiing spokesman Skip King elaborated: "There are areas in the company that can be operated more efficiently," King said. "That's a primary focus. I can't tell you what the specifics are."

Steamboat Ski and Resort Corp. President Chris Diamond said he didn't think Fair's goal of "improving cost management" has implications for Steamboat beyond, "the fact that we're struggling and another tough year has implications for everybody."


To reach Tom Ross call 871-4210 or e-mail: tross@steamboatpilot.com

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