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Sale of Sea Island Co. Ends 80 Years of Family Ownership

Bankruptcy Planned to Escape $600 million in Secured Debt


By Mary Starr, The Brunswick News, Ga.McClatchy-Tribune Regional News

Aug. 11, 2010--Sea Island Co., the luxury resort operator that thrived for eight decades by catering to well-heeled Southerners but stumbled as it tried to compete on a global stage, is being sold to a partnership of equity firms for $197.5 million and will file bankruptcy to escape from $600 million in secured debt.

The company is to tell members of the Sea Island Club, essentially a country club within its resorts, about its future at a meeting today at its flagship The Cloister hotel and will also inform employees.

While the sale to Oaktree Capital Management of Los Angeles and Avenue Capital Management of New York City will end more than 80 years of ownership by the Jones Family, current chief executive Bill Jones III will remain with the new owner, Sea Island Acquisition.

Because Sea Island Co. will voluntarily file for Chapter 11 bankruptcy protection, with the consent of its lenders, a bankruptcy judge will have to allow other bidders for the company to make a higher offer than what Oaktree and Avenue are willing to pay.

It is unlikely, though, that one will be made. Goldman Sachs, the New York City investment bank Sea Island Co. hired to handle its sale, spent more than six months finding the most attractive offer for the company.

The sale gives the new owner substantially all of Sea Island Co.'s remaining assets -- The Cloister, on Sea Island, and The Lodge, on St. Simons Island, both Forbes Five-Star resorts; Ocean Forest Golf Club, on Sea Island; the Island Club at Retreat, on St. Simons Island; and the company's headquarters building on St. Simons Island.

All totalled, at $197.5 million it is a cut-rate sale. Sea Island Co. says it spent $350 million from 2004 to 2006 to transform The Cloister alone from a Mediterranean-style resort with a largely regional following to a marbled playground for national and international travelers, filled with hand-loomed Turkish rugs and original artwork in rooms.

"For all intents and purposes, it's every physical asset the company has," said David Bansmer, president and chief operating officer of Sea Island Co., who also will remain with the new owner.

All other current Sea Island Co. employees will be offered jobs with the new owner, Jones said.

The new owner will pay Sea Island Co.'s debts to its suppliers and will give Sea Island Club and Ocean Forest Golf Club members full credit for their membership deposits, the company said.

"We have the consent of our lenders and so (the bankruptcy process) shouldn't take long at all," Jones said of the prepackaged bankruptcy, which he anticipates being completed by the end of the year.

In the interim, Sea Island Co. has secured a debtor-in-possession loan from some of its secured bank lenders, giving it access to cash. Typically, a secured lender holds a priority claim on a physical asset, such as land, as security for its loan.

"We're actually financially stronger now," Bansmer said. "We have access to new liquidity, and have a stronger foundation and new opportunities as a result of this agreement."

Sea Island Co.'s financial problems began with its rebuilding of The Cloister from an upscale resort that was showing visible signs of aging to a super-sleek, uber-posh retreat.

With only about 200 guest rooms between The Cloister and The Lodge -- about half of the 400 typical for a five-star resort -- Sea Island Co. bet heavily that income from its sales of land and development of upscale residential communities would offset operating expenses of the resorts.

The global recession canceled that bet.

This past Nov. 19, Sea Island Co. had to hand over to Wells Fargo bank the deeds to Frederica, a development on St. Simons Island of estate homes where lots originally sold for up to $2 million, and two adjacent tracts of undeveloped land to escape its debt on the development.

A few weeks before, it had said in October that it would sell four tracts, totalling about 37 square miles, in Glynn and Camden counties to raise cash and to focus on its resort operations. About a month ago, it closed on that sale to a Dallas-based land investor for $56.3 million.

The inevitable march toward a sale -- always tempered with the hope of a white knight investor arriving -- occurred Jan. 27 when Sea Island Co. said it had defaulted on a three-year loan from Synovus bank and had retained Goldman Sachs to explore its options.

"We are very pleased to have reached an agreement with an investment group that has come to know Sea Island well and appreciates what made us special from the start," Jones said.

"Our commitments to our members, employees, guests and community were carefully considered throughout our review of strategic alternatives and we believe this is the best outcome."

In Sea Island Acquisition, the new owner unites Avenue Capital on the East Coast, which manages about $18 billion in assets, and Oaktree Capital, on the West Coast, with about $75 billion in assets. Each invests heavily in distressed properties.

Avenue was founded in 1995 and has offices in London, Luxembourg, Munich and eight cities in Asia. Oaktree was founded in 1995 and has office in 14 cities worldwide.

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To see more of The Brunswick News or to subscribe to the newspaper, go to http://www.thebrunswicknews.com/.

Copyright (c) 2010, The Brunswick News, Ga.

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