Timeshare bankruptcy clears way for sales
Leisure Resorts likely to be sold by Oct. 31
September 18, 2003
A pair of timeshare resorts owned by bankrupt Leisure Industries Corp. of Las Vegas is expected to be sold by Oct. 31.
The 77-suite Leisure Resorts Hilltop and 60-suite Leisure Resorts Steamboat on Pine Grove Road have continued to operate as the company makes its way through bankruptcy. Although the resorts will remain open under new ownership, Leisure Industries will cease to exist once it has completed disposing of eight resort properties in five states.
Alan Bentley, a court-appointed trustee presiding over the liquidation of Leisure Industries’ assets, said a bankruptcy judge in Reno, Nev., this week approved the sale of Leisure Resorts properties from Orlando, Fla., to Honolulu by the end of October. However, the buyers have not been determined.
“It should be a successful process,” Bentley said. “The impact on timeshare owners should be relatively nonexistent.”
Timeshare owners will continue to have the same entitlements under a new management contract, a company spokesman said after the sale.
Although Leisure Industries Corp. is going through Chapter 11 proceedings, there is no plan for the company to emerge from bankruptcy, Bentley said.
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“We refer to it as a ‘liquid 11,'” Bentley said. “We’re continuing to operate the company, the resorts are all open, but our exit strategy is not to reorganize our debt. We are liquidating our assets.”
Proceeds from the sales will be applied to outstanding loans, Bentley said. He has secured $8 million in financing from Textron Financial to keep the resort properties operating throughout the transition, he said.
The form of liquidation chosen by Leisure Industries is less harsh than liquidating under Chapter 7 bankruptcy, Bentley said.
“Chapter 7 has much more severe results,” he said. “This is a much more palatable way to accomplish the same ends.”
He is not forced to liquidate Leisure Industries’ assets at fire-sale prices, Bentley said. Interest in them reportedly is strong. The company’s assets are being offered either in aggregate or in smaller combinations. He expects to weigh several offers.
Leisure Industries’ primary assets are not the physical property at the resorts but the receivables due on timeshare purchases as well as the management contracts signed with homeowners associations to operate the resorts, Kevin Shields told Steamboat Today in July. He is the director of resort operations for Leisure Industries.
Warranty deeds filed by the Routt County Clerk’s Office this month suggest that Leisure Resorts recently has re-purchased a significant number of timeshare intervals from individual owners. However, Bentley said the company is not actively purchasing any real estate or timeshare intervals. Sources contacted by Steamboat Today said a likely explanation for the transactions is that they are the final result of foreclosures on timeshare properties. As a consequence, a new deed must be filed for the real estate.
Foreclosures are a key element in Leisure Industries’ decision to declare bankruptcy.
Documents filed with the Securities and Exchange Commission by Mego Financial Corp., parent of Leisure Industries, reflect that lagging sales across its numerous subsidiaries and the number of customers abandoning their timeshare vacation contracts have sapped Leisure Industries’ ability to operate. Leisure Industries arranged financing for many of its timeshare purchasers and used its consumer contracts to underwrite lines of credit that were its source of operating funds.
“That’s what was killing us,” Shields said. “Our bad paper was close to $10 million. We were relying on the homeowners fund to operate and pay bills.”
The company has not filed a quarterly earnings report with the SEC in the past year. The last report in September 2002 show that the two properties in Steamboat accounted for more than 40 percent of the company’s 10,100 timeshare intervals. At Steamboat Hilltop, 1,305 of 2,856 intervals, or 45.7 percent, remained unsold. At Steamboat Suites, 814 of 3,060 intervals, or 26.6 percent, were unsold. Throughout the company, an average of 12 percent of all intervals were unsold at the time of the earnings report.
The sales offices in Steamboat were closed in July, when the company announced its bankruptcy.