The Pellucid Perspective - February 2013 - (Page 5)

GOLF COURSE FINANCE Bankruptcy courts protect course revenues from lenders Decision not new, but may catch lenders and owners unaware By Jim Dunlap I n mid-January of this year, a veteran golf course operator for“Often a lender will look to those revenues as though they warded an article to a number of industry stakeholders which may be part of its collateral, but that has not proven to be the may have raised some eyebrows among both owners of strug- case,” Young said. “I would think that lenders who were around gling golf course properties and their lenders. The article by at- in those earlier years may be aware of these rulings, but the new torney Bennett Young of the Global Hospitality Group was crop of bankers may not be.” published in the Hotel Law Blog (, While course revenues generated after the bankruptcy filing and detailed a relatively recent case involving a lender’s rights date may be safe from confiscation by the lender, both Bistrow to the greens fee and range revenues of a golf course debtor and Young noted that there are some restrictions of what the who had successfully filed for Chapter 11 bankruptcy protec- course owner may do with those funds. Generally speaking, tion. In a nutshell, the Ninth Circuit Appellate Panel ruled that owners may use those revenues to fund ongoing course operathe lender in the case had no rights to any such revenues sub- tions and maintenance, or to make improvements at the facilsequent to the bankruptcy filing date, despite the fact that the ity that are designed to maintain or improve the value of the loan documents specifically included those lender’s asset. revenues in the lender’s collateral. “Even where greens fees or the like may While course revenues The case in question involved the 36be cut off from a lender during bankruptcy generated after the due to specific and unique provisions of hole Cottonwood Golf Course facility in the San Diego suburb of El Cajon, owned bankruptcy filing date bankruptcy law, the debtor does not have and operated by Premier Golf Properties unfettered rights to use such funds under may be safe from via a loan from Far East National Bank. bankruptcy law, and there are many other When Premier successfully filed a Chapter lender protections that come into play in confiscation by the 11 petition, Far East claimed that ongoing Chapter 11 cases,” Bistrow said. lender, both Bistrow greens fee and driving range revenues from Bistrow said that one potential use of the facility were part of Far East’s collateral. those revenues by the debtor is to pay atand Young noted Premier disagreed, and prevailed in court. torney fees arising from the bankruptcy filthat there are some ing, which may depend on the individual While the ruling may come as a surprise to some lenders - and some owners - bankbankruptcy court’s ruling. She also pointed restrictions of what ruptcy specialist Mikel Bistrow of the Foley out that one issue not addressed in the Cot& Lardner LLP practice, based in San Di- the course owner may tonwood case, which involved a daily fee ego, said it shouldn’t have. According to Ms. do with those funds. course, is what happens in the case of a Bistrow, bankruptcy courts have consistentprivate course. How will the court look at ly ruled the same way in similar situations member dues and initiation fees? All, some, dating back to the early 1990s. or none of those could conceivably be pro“That case basically follows other similar cases,” Bistrow said. tected from a lender, depending on the bankruptcy court’s rul“It’s not earth-shattering, but it’s a good case to hear about if ing. The club’s status as either an equity or a non-equity club you’re representing a golf course owner who is contemplating could also factor into the decision. bankruptcy. There are very specific provisions in the bankruptcy The broader question posed by this most recent decision is code where certain liens on the property may be cut off, except whether it could make lenders even less likely to finance golf if they involve real property or “rent.” In these cases, the courts course acquisition, development or operating capital. While ruled that the greens fee and range fee revenue was generated Bistrow felt that was unlikely, due to the numerous earlier precby the owner’s operation of the business, and were not “rent” for edents, Young’s observation that there are local banks and other use of the facility by its customers.” institutional lenders relatively new to the golf industry could Young, the article’s author, agreed that there have been ear- also come into play if those lenders approve a loan under the lier precedents involving local bankruptcy courts which came assumption that if things go awry, they can count on at least to the same conclusion, but noted that the Cottonwood case some revenue stream to recoup their investment. Regardless, ruling came from a District Appellate Court, whose precedents the ramifications of the Cottonwood case are worthy of considtend to carry more weight. eration, by both lenders and owners. n The Pellucid PersPecTive 5 http://WWW.PELLUCIDCORP.COM

Table of Contents for the Digital Edition of The Pellucid Perspective - February 2013

The Pellucid Perspective - February 2013
Part-time golf courses: A concept worth trying?
Bankruptcy courts protect course revenues from lenders
Show notes from 35,000 feet
Volunteers may not be free
January golf weather impact: Down...but not unexpected
Golfers not goin’ to Kansas City
Movie time: License required
Concert Golf Partners buys CC at Woodmore in D.C. Area
Bishop’s tenure as PGA President promises deep breaths of fresh air

The Pellucid Perspective - February 2013