The second largest destination club measured by the number of members is undergoing a major restructuring. The clubs large debt level and the ongoing slow economy have brought it down.
Ultimate Escapes has primarily grown through acquisition. In 2007 it acquired the first ever destination club, Tanner and Haley out of its own bankruptcy for $105m. This brought in 645 members and was mainly financed by debt. February 2008 saw the acquisition of Ventures Equity Vacation Club for $12m and the addition of 19 members. Last year the club acquired Private Escapes and another 387 members.
In October of last year the club became a public company by merging into a listed special purpose acquisition company. This brought in about $10m of new capital but also revealed the heavy debt levels that had built up on the company balance sheet. CEO Jim Tousignant had tried to raise a further $20m of equity funding through a secondary offering in February this year, but ended up pulling the offering citing “poor market conditions”.
At the start of this recession several other destination clubs filed for bankruptcy and closed down. Most of the remaining clubs had to make adjustments, reducing costs, increasing annual dues or in the case of Ultimate Escapes asking it’s members for a one off assessment which brought in about $15m.
But the challenge for Ultimate has been that its annual dues paid by members do not cover the operating costs of running the clubs luxury homes and providing the member services. Throw in the high interest charges on the large debt and the income statement just showed constant losses.
Any club that wants to survive needs to cover all its annual operating costs and any debt service costs, with the annual dues paid by members. The gap between these two is just too wide at Ultimate Escapes.
In some ways Ultimate’s problems are no different to many consumers - taking out large mortgages that cannot be supported by income once the good times end and the recession roles in.
A few weeks ago the club appointed Sheon Karol of CRG Partners as a Chief Restructuring Officer and also entered a forbearance agreement with their principal lender CapitalSource giving them a deadline of 10th September to figure something out. One of the first moves after this was to close down the
Last Thursday night, the 9th September Jim Tousignant held a conference call for members and proposed making the club majority owned by the members. This would have required members to pay a one time “Equity Club Conversion Fee”. He asked members to vote on whether they would go along with this proposal. But by close of play Friday the club laid off most of its staff, leaving just a few executives and staffers.
Last night the club informed members that their vote on the move to be member owned had been turned down by a ratio of roughly 2 to 1. In a way this is no surprise, the members who joined early on have seen their original club, Tanner & Haley go bankrupt, have been asked to pay additional assessments or were suspended if they didn't pay and now are being asked for more money. Members also saw their agreements changed as their clubs were acquired and merged in.
On the flip side, most members love the travel experience, enjoying fabulous vacation homes in beautiful locations with lots of services and assistance. But the ongoing changes and requests for cash have outweighed what should be a relaxing and enjoyable part of ones life.
The club has been in negotiations for over 6 months with another club or hospitality entity who has completed their due diligence. Ultimate and the CRO have also reached out to over 200 other potential acquirers and have had interest from over two dozen parties. If the club is to be acquired, the most likely outcome would seem to be a quick bankruptcy to clean up the balance sheet, followed by the acquisition. Then hopefully most members can get back to enjoying their travels with friends and family.
Correction: The original version of this article noted that the CFO had left Ultimate Escapes last week. We have now been informed that he is still at the company.
