Hermitage bankruptcy 'a leap into the unknown'
WILMINGTON — Since the Hermitage Club bankruptcy case went from Chapter 11 to Chapter 7, there have been questions about what a sale of the assets may look like and how or if creditors will be paid.
Club member Robert Coffin called the Chapter 7 proceedings "a leap into the unknown."
"It seems to me that unsecured creditors will end up with nothing, including all the many trades people, etc. in the valley," he wrote in an email, referring to people without liens or judgments against Hermitage entities. "It also seems likely to me that secured creditors will get less than 100 percent."
He said it is unclear how long the process will take and he would "very surprised" if a new club could be up and running by the upcoming winter season — something members of the Ad Hoc Committee of Club Members, which is participating in bankruptcy proceedings, are hopeful of if a speedy sale can occur.
Coffin questioned how long it would take to get permits and leases secured, and whether the Hermitage name could be used.
"This is not being sold as a company/going concern, but the individual underlying assets being sold off," he wrote. "The real question is whether the ad hoc committee has something up their sleeve, and is intending to somehow club together/get financing to buy the assets out of liquidation for as little as possible (returning little to creditors, none to unsecured) and get a new club going on that basis, debt free, which clearly would be a far more financially viable club, but as I said, that would be at the expense of all the creditors whose funds have created it in the first place."
Coffin has been outspoken in his criticism of the Chapter 7 approach. He expressed concern after the ad hoc committee supported an involuntary Chapter 7 bankruptcy petition against Hermitage Inn Real Estate Holding Company LLC in May. The committee paid the legal expenses of the creditors who filed the petition by crowdfunding on gofundme.com.
"The club members continue to be the most logical buyer of the club," said Dan Solaz, former chief financial officer and one of the three creditors who filed the Chapter 7 petition.
Attempts by club founder Jim Barnes to reorganize under Chapter 11 and reopen the club in time for winter failed last month. Judge Colleen A. Brown ordered the cases to be converted to Chapter 7, citing "the continuing loss and diminution of the debtors' estates and the absence of a reasonable likelihood of rehabilitation; the debtors' gross mismanagement of the estates; and the debtors' failure to maintain insurance."
"The Chapter 7 presents the best opportunity to purchase their club without having to deal with Barnes," Solaz wrote in an email. "This allows the members the opportunity to recoup their investment in the club but over an extended period of years."
Last week, Berkshire Bank filed a motion for relief from the automatic stay that paused all litigation while bankruptcy proceedings occur. The Hermitage defaulted on more than $17 million in loans the bank provided for a new base lodge and other improvements.
Solaz said the bank is looking to foreclose the Hermitage Inn, Snow Goose Inn, Doveberry Inn, golf course and furniture, fixtures and equipment from the facilities. And the Cold Brook Fire District, which made upgrades to its water and sewer system to accommodate Hermitage development, will need to be paid for a bond the district took out for the project.
A land known as the East Tract "has little value," Solaz wrote, regarding property not affected by the bank. But "there is enough value in selling the remaining real estate units of 90 or so (at values of $450,000 to $650,000) to repay the acquisition debt related to a club purchase and meet the CBFD bonding payments. Anything beyond 90 or so units would require the construction of a new facility" to handle water and sewer demands.
His outlook assumes annual club dues cover operations. He said members are more than willing to pay but only if they are owners in the new arrangement or have a lot of say about the future of the club.
Solaz does not see much value for the unsecured creditors.
"The bank will foreclose out all lien interests paving the way for an owner of the assets free of encumbrances," he said. "Then a buyer is a distinct possibility."
He said proceeds in a foreclosure sale above what the bank is owed will go to the secured lenders.
Wilmington Town Manager Scott Tucker said a court hearing is scheduled for Aug. 23 "when we hope to learn more" about what to expect. The United States Bankruptcy Court for the District of Vermont is taking up the bank's motion for relief from the automatic stay.
Reach staff writer Chris Mays at firstname.lastname@example.org, at @CMaysBR on Twitter and 802-254-2311, ext. 273.
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