ASC works on moving mountain of debt

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The parent of Steamboat Ski & Resort Corp. reported a continuing heavy debt load and operating losses on the resort side of its business this week.

However, representatives of American Skiing Company said they were better positioned to reinvest in their seven ski resorts as they looked ahead to fiscal 2006 and 2007.

ASC filed its year-end report with the Securities and Exchange Commission this week for fiscal 2005, ending July 31. The company reported a net loss of $73.3 million. Resort revenues were up about $17 million, to $267.3 million. Spokesman David Hirasawa said ASC was able to hit benchmarks with its lenders that open up the possibility that more money will be freed for capital expenditures in the next two years.

"We're in compliance with all of our (loan) covenants," Hirasawa said. "We've improved the liquidity of the company, so we have a little more breathing room. And that's really what it's all about.

"Each year that we meet our financial goals our credibility with our lenders increases, and we've got a pretty good track record just recently."

Still, the company faces a mountain of debt that refuses to go away.

"We are highly leveraged," ASC executives reported to the SEC. "As of Sept. 30, 2005, we had $673.7 million of total indebtedness outstanding."

The total includes $251.1 million of secured debt that requires regular payments on principal and interest. In addition, it includes $319.4 million in redeemable preferred stock, which someday will be redeemed for cash but does not require regular payments by the company.

President and CEO B.J. Fair said in a news release this week that the popularity of an "All for One" ski pass at the company's five New England resorts last winter helped boost resort revenues. Steamboat was the only of ASC's ski areas including one in Utah and five in Vermont, New Hampshire and Maine -- that didn't show increased visitation last season. Steamboat slipped from just more than 1 million skier visits to 971,770. Steamboat officials have hinted there is more to their fiscal performance than raw skier visits, but they say they aren't free to discuss the details.

Despite the growth in resort revenues, ASC's balance sheet reflects a net loss from the operation of the ski areas of $70.6 million. Hirasawa said a truer picture emerges when losses attributable to "merger restructuring, asset impairment charges, the need to write off deferred financing costs," and the gain on the sale of the Haystack Vermont resort are subtracted from the equation.

When that is done, resort losses shrink to $65.8 million, a slight improvement over $66.47 million in fiscal 2004.

The company's real estate division reported revenues of just $9.16 million in fiscal 2005, down from $33.4 million the previous year. That drop is largely because of a one-time auction of condominiums in 2004. Ongoing real estate revenues are attributable primarily to sales of interval ownership at the Steamboat Grand Resort Hotel and a similar property at Sugarloaf, Maine. The major portion of the Steamboat sales is dedicated to retiring a lingering construction loan for the hotel. The company reported vague intentions to develop new real estate partnerships at its resorts with the intent of generating new revenues.

On paper, ASC reports annual interest expenses of $81.6 million, but again Hirasawa said the number is somewhat misleading. It includes accumulated dividends on the shares of preferred stock held by Oak Hill Capital Partners. Federal accounting regulations require that the dividends be reflected as interests, but they are not paid out annually, Hirasawa said. Instead, they are added to the amount that must eventually be paid out when the shares become redeemable. The unpaid dividends are also subject to a compounding interest effect, he said.

Oak Hill Capital partners, the investment fund controlled by Texas billionaire Robert M. Bass, controls ASC's board of directors. It became involved in the company in 1999 when former chief executive Les Otten turned to Oak Hill for a financial bailout. Otten continues to have an interest in the company -- he holds all 14.7 million shares of its Class A common stock.

Hirasawa said the company continues to reap the benefits of a major debt restructuring completed one year ago. That restructuring has contributed to the improved liquidity and reduced interest rates on some of the debt, he added.

-- To reach Tom Ross, call 871-4205 or e-mail tross@steamboatpilot.com

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