Steamboat Springs A pair of timeshare resorts here are "likely" to be offered for sale after their parent company field for Chapter 11 bankruptcy last week.
A company spokesman said the 56-unit Leisure Resorts Hilltop on Highpoint Drive and 60-unit Leisure Resorts Steamboat Springs Suites on Pine Grove Road will continue to operate normally. However, the local sales office closed on Wednesday.
"The expenses going out (of the sales office) were no longer justified by the sales coming in," Director of Resort Operations Kevin Shields said.
Documents filed with the Securities and Exchange Commission by Mego Financial Corp., parent of Leisure Resorts, show that lagging sales across its numerous subsidiaries and the high number of people abandoning their timeshare vacation contracts combined to drive the Las Vegas-based company into bankruptcy. It will seek protection from its creditors while it continues to manage its resorts and work to reorganize under Chapter 11.
Mego was notified July 1 that it would be delisted from the NASDAQ stock exchange; the bankruptcy filing followed eight days later.
"To meet the capital needs of the company to complete its reorganization plan, the company likely will sell certain assets or operating entities during the current period," company officials told the SEC.
Shields confirmed Thursday that the two Steamboat properties will almost certainly be among those sold but there is no present timetable for the offering.
"What is happening, through Chapter 11, is a controlled liquidation," Shields said. "Both, most likely, will be sold."
Appraisals must be undertaken before the two resorts can be listed for sale, Shields said. In the event of a sale, vacation timeshare owners, who hold title to deeded real estate in the buildings for a period of one week annually, would find themselves working with the new owners under a new management contract, Shields said.
The local properties employ approximately 50 people and will remain open for vacation visits, Shields said. Owners' reciprocal arrangements, which allow them to swap a week in Steamboat for a vacation at another resort, will also remain in place, Shields said.
The restaurant at the Leisure Resorts Hilltop was previously spun off as a separate company and could also be sold, but as a separate transaction, Shields added.
Mego reported revenues of $71.8 million in 2002, compared with sales of $102.4 million in 2001. However, the number of vacation interval buyers who defaulted on their contracts also undermined operation of the company. Mego used its consumer contracts to underwrite lines of credit that were its source of operating funds.
"Advances against these lines, generally 80 percent of the principal amount of the note pledged, are the primary source of the company's operating liquidity," company officials told the SEC.
Routt County Treasurer Jeanne Whiddon said the number of local foreclosures undertaken on behalf of Leisure Resorts in 2001 and 2002 totaled 50, representing an aggregate $423,000 in unpaid principle. There have been no new foreclosure filings in 2003.
The average amount of unpaid principle involved in individual timeshare foreclosures here ranged from $5,800 to about $20,000. Unlike owners of whole real estate, owners of vacation intervals have relatively little disincentive to stay out of foreclosure when they are unable or unwilling to make payments; nobody is coming to take away their home.
Shields said the total amount of money involved in the Steamboat foreclosures was relatively insignificant, but when the trend is spread across the company, it is very significant.
"With nine other properties, that adds up really quick," Shields said. "That's what was killing us. Our bad paper was close to $10 million. We were relying on the homeowners' fund to operate and pay bills."
Mego has not filed a quarterly earnings report with the SEC since the filing that covered the three months ending Sept. 30, 2002. That document, now nearly 10 months old, reveals that the two Steamboat properties carried unsold inventories that were among the highest of 19 held by Mego subsidiary Leisure Services Corp.
LSC controlled more than 1,600 units representing more than 82,000 intervals. At the end of September 2002, 10,100 intervals remained unsold. The company owns properties in Hawaii, Las Vegas and Orlando, Fla. At Steamboat Hilltop, 1,305 (45.7 percent) of 2,856 intervals remained unsold, and at Steamboat Suites, 814 (26.6 percent) of 3,060 were unsold. Throughout LSC's resorts, an average of just more than 12 percent of all intervals remain unsold.
Mego has been aggressive over the last several years in acquiring other companies in an effort to boost the inventory of intervals available to sell.
Shields said he believes the Steamboat properties are among the company's nicest, and the buildings are in "great shape." But the price point on the properties doesn't fit in with Mego's announced strategy of focusing on high-end units, particularly those in Las Vegas. That fact "drove down the customer base," he said.
Mego has also felt increasing challenge from heavy hitters entering the vacation timeshare industry.
Marriott, Disney, Hyatt and Ritz Carlton have all offered stiff competition, Mego officials told the SEC.
"Many of these have greater resources, better products, more locations and more efficient operations than (Mego)," they wrote.
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