Rumors are flying that Intrawest may put Whistler Blackcomb up for sale.
Unlikely says Brownlie.
But Intrawest examines selling other assets to reduce $1.7 billion debt
As Intrawest ULC scrutinizes all assets in an attempt to reduce $1.7 of debt, the president and chief operating officer of Whistler Blackcomb said it is unlikely the number one ski resort in North America will be sold.
“I certainly can’t comment on Intrawest and Fortress, but I can say that Whistler Blackcomb is seen as a core asset to the success of Intrawest,” said Dave Brownlie on Tuesday afternoon.
“As a result, I am very confident that Whistler Blackcomb is not up for sale at this time.”
Mountain resorts across North American are buzzing with rumours about which assets Intrawest might sell after CEO Bill Jensen told a Colorado newspaper last week that the company was looking at “all options to reduce our debt.”
Jensen told Summit Daily News that Intrawest also does not want to sell Copper Mountain, but he said the company may finance some of its businesses independently, including assets in Quebec. Mont Tremblant is Intrawest’s only Quebec resort.
Intrawest’s spokesperson Ian Galbraith declined to elaborate this week.
“There are a lot of rumours and speculation in the market, so we are not commenting on it at this time,” said Galbraith.
“At Whistler Blackcomb, our core focus is the winter experience.”
Intrawest has been hit hard by the economic recession, with fewer ski visits and a tough real estate market. In Whistler alone, skier visits were down 15 to 16 per cent, which Brownlie said “has a revenue impact on the organization and ultimately on Intrawest.”
As a result, all of Intrawest’s salaried, year-round employees had their wages rolled back to July 2008 levels, said Brownlie, and the company incentives won’t be paid until business picks up.
Intrawest owns 10 ski resorts and one golf resort across North America. All its resorts are involved in real estate.
Future of Fortress also uncertain
Intrawest’s owner, New York-based Fortress Investment Group, has also graced the headlines a lot lately. Fortress bought Intrawest in 2006 for $1.8 billion, including more than $1 billion in debt.
Last October, the $1.7 billion loan to buy Intrawest came due in the midst of the market turmoil, leaving Fortress investors scrambling to refinance the loan. And later that year, the investment group bought out of Vancouver’s Olympic Village as construction costs rose and fears mounted about the real estate market.
Analyst Jackson Turner, with New York based Argus Research Company, told Pique Newsmagazine earlier this year that he believes Fortress had a planned to take Intrawest private and load it up with debt.
By doing this, Turner said, private equity companies turn businesses around, even if operations are suffering. Also, whenever you sell a company loaded up with debt, you sell it for a higher price. Many private equity companies have been doing this for the last 20 years.
“I would guess (Fortress) was planning to take Intrawest private in 2006 and then reap the benefit of turning it around and selling it in a couple to five years, at which point it would have been a great windfall for them,” said Turner.
“Obviously that has not panned out. Now they have enormous amounts of real estate and no one interested in buying in these ski resorts, where I understand traffic is down.”
Fortress has close to $35 billion in equity by institutional clients and high-net-worth individuals. Its interests include real estate, newspaper publishing, aircraft leasing, shipping and telecommunications.
Until recently, said Turner, it was likely that asset managers would acquire under valued companies, break them up or turn them around, then sell for a profit – like the Fortress deal to buy Intrawest, which some analysts argued was an undervalued portfolio.
Now the future of private equity is somewhat uncertain.
The funds raised 60 per cent less in the fourth quarter of 2008 than the same time a year earlier, according to analysis by Dow Jones. In 2007, when Fortress first went public, shares were issued at $18.50, and closed the first day at $31. By the end of last year they were trading in the $1 range. Earlier this week shares were trading at about $2.30.
And challenges in the tourism sector, where visitor projections continue well below last year’s pace, make it much more challenging for Fortress to support a struggling Intrawest.
“Were conditions to deteriorate further for Intrawest, it would be harder for Fortress to step in and act as a backstop because their other businesses are not doing very well,” said Turner.”
“It just makes the situation that much more difficult for their relationship.”
Fortress does not reveal who owns the Intrawest private equity fund, even though its annual report lists the Fortress Intrawest Coinvestment Fund as the syndicate of lenders who bought Intrawest debt.
When Tuner talked to Pique in January, he speculated that Fortress may go private again.
“I don’t foresee the public company lasting much longer. Regardless of the real effect of the share price on their underlying business, that does not look good for an investment manager to be trading at $1.50 from just a prestige angle,” said Turner, referring to the low share price of Fortress funds at the end of 2008.
“I think it is a black eye for them, so I think their days as a public company are numbered.”
Turner did not believe Fortress would go out of business, though, and at the time he said he wouldn’t be surprised if Fortress considered selling Intrawest.
“I think they would be possibly very interested in off-loading Intrawest, but there is just no one buying,” said Turner.
“I would imagine that Fortress private equity business will stay intact and therefore Intrawest will stay a part of Fortress for some time.
Typically in a private equity firm, an investor will invest in a specific fund managed by the firm and become a limited partner in the fund instead of an investor in the firm itself.
A record $686 billion of private equity was invested globally in 2007, up over a third on the previous year and more than twice the total invested in 2005.
By Claire Piech and Clare Ogilvie