More parties involved in Intrawest furor than we’ve heard from

When Whistler and Blackcomb "merged" under the Intrawest banner in 1996 Blackcomb's founding president, Hugh Smythe, said of the 16-year rivalry between the two mountains: "The competition has been fun and exciting to this point, but it's a different game now. We're at the point where the landscape is changing very quickly. We're in a different league now."

The implication was that the stakes in the mountain resort business had grown big enough that neither Intrawest, owner of Blackcomb and five other ski areas at that time, nor an independent Whistler Mountain Ski Corp. could afford to play little games anymore. Given the growth of rival mountain resort operators Vail Resorts, American Skiing Company and a few others, Intrawest had to acquire Whistler Mountain, and Whistler Mountain Ski Corp. would get left behind if it had stayed independent.

For a time, Intrawest's annual reports reflected this growth philosophy with interlocking gears showing how one ski area generated demand for real estate, which led to development of a commercial core village, which led to economies of scale in services - food, equipment rental and retail, property management - which led to more lifts and acquisition of more resorts.... And the demographics of baby boomers and echo boomers supported this whole model.

But some of the tenets the model was built upon, and which many other companies relied on, crumbled in 2008. The crash of Wall Street exposed the recklessness of many financial institutions and investment firms that backed companies like Intrawest. Their collapse or near-collapse left corporations and individuals vulnerable and ensured the greatest recession in nearly a century.

Intrawest, which would have been affected by the economic meltdown if it was still an independent company, has been hammered because its parent company, Fortress Investment Group, borrowed $1.8 billion to buy Intrawest in 2006. In the words of one financial analyst, Fortress acquired some good assets, it just paid too much for them.

And that's the world Whistler Blackcomb and Intrawest now inhabit. It's not about skiing or even real estate anymore, as it was - or at least appeared to be - when Intrawest was a public company. Now Intrawest is a collection of assets held by a private equity firm whose first order of business is return on investment. And as most people know by now, the return is minimal.

Citing an August 2009 letter from Fortress to investors, Bloomberg reported that Intrawest was the worst performing of 10 companies in Fortress's $2.5 billion Fund IV. The company was valued at $721 million. Fortress reportedly paid $1.8 billion for Intrawest and assumed nearly another $1 billion in debt.

The more immediate concern, of course, is payment of that debt. Creditors have run out of patience and announced they will hold an auction for their equity in Intrawest. Since the notice of auction was published on Jan. 19 two Intrawest assets have been sold: Panorama resort and the real estate development at Squaw Valley. What's next is anyone's guess.

With the value of Intrawest dwindling and Fortress struggling to pay off its debts, the question turns to control of Intrawest. With only anonymous sources offering comment from New York, where the drama is being played out, it's difficult to distinguish facts from trial balloons but there are indications that the creditors want to wrest control of Intrawest from Fortress. Their motivation would seem to be to recoup cash from the sale of assets. In other words, the dismantling of the company Joe Houssian put together.

But a lot can happen in the two weeks before the scheduled auction. If it finds ways to satisfy its creditors Fortress may maintain control of Intrawest, or some part of what remains of Intrawest.

One of the points that seems to get lost in the fury of discussions is that there are contracts in place and obligations to be fulfilled. The anonymous source that keeps insisting Fortress is in discussions with the Canadian government over payment to Whistler Blackcomb for hosting Olympic events seems to overlook this. A federal government spokesperson says there has been no contact with Fortress.

There is also a contract between the provincial government and Whistler Blackcomb regarding use of Crown land, i.e. all the ski runs. The province, which receives a lot of tax revenue from Whistler Blackcomb, has substantial interest in the long-term viability of the ski area and in increasing revenue from it. For those reasons, it may also have an interest in who owns the ski area.

The landscape is changing.



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