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Bankruptcy Judge Refuses to Allow Starwood's Late Offer
of $199 million Cash for Sea Island Co.

By Teresa Stepzinski, The Florida Times-Union, JacksonvilleMcClatchy-Tribune Regional News

Sept. 10, 2010--BRUNSWICK -- A U.S. Bankruptcy Court judge rebuffed a late bidder Thursday that is offering about $199 million cash for the financially crippled Sea Island Co.

U.S. Bankruptcy Court Judge John Dalis refused to allow the Starwood bid at this point in the process. If the company wants to buy Sea Island, it must wait until an Oct. 11 auction.

Federal law requires such auctions to make sure that creditors get the highest possible returns on their claims.

Sea Island already had agreed to sell its golf courses, hotels, spa, beach club and other resort properties for a minimum of $197.5 million in cash to a joint venture of funds managed by Oaktree Capital Management LP of Los Angeles and Avenue Capital Group of New York, which specialize in distressed properties.

Oaktree-Avenue beat out Starwood Capital Group and KSL Recreation. At one point, Starwood had dropped out of the initial bidding. After Sea Island filed for Chapter 11 protection from its creditors on Aug. 10, however, Starwood came back with a cash offer that is $1.5 million more than the Oaktree-Avenue bid.

It would be unfair to permit it now, Dalis told lawyers and Sea Island residents who packed his courtroom for a hearing on issues relating to the pending sale of the company at auction.

"They knew the procedures. It's important that everybody plays by the same rules," Dalis said. "Starwood got out in the initial process. It would be inappropriate and inconsistent with the system to let them come in with a late bid."

Former Sea Island president Dennie McCrary, who is owed about $27 million, and other unsecured creditors supported Starwood's late bid. They were joined by about 25 Sea Island club members.

Lawyers for the two groups asked Dalis to block the Oaktree-Avenue sale in favor of Starwood. The higher cash sale price would help ensure that unsecured creditors like McCrary are paid what they are owed, and club members' rights are protected.

"The unsecured creditors claims are being left behind ... Our intention is to level the playing field, which in their view is skewed greatly to the lenders," said Jordi Gusco, who represents the committee of unsecured creditors.

Jason Watson, who represents Synovous Financial Group, also asked Dalis to allow Starwood to participate.

Sea Island owes about $500 million to Synovus Financial Group, Bank of America and Bank of Scotland. Those banks will benefit if Sea Island brings in a higher sale price.

Sea Island was the only party that wanted to disallow Starwood's bid.

Sarah Borders, a Sea Island lawyer, told Dalis that setting aside the agreement with Oaktree-Avenue would harm the company's employees and all of its 16,000 creditors.

The timing of the auction is somewhat ironic. The McGladrey Classic, Sea Island's first PGA Tour golf tournament, will be contested Oct. 7-10 on Sea Island's Seaside course.

teresa.stepzinski@jacksonville.com, (912) 264-0405

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To see more of The Florida Times-Union or to subscribe to the newspaper, go to http://www.jacksonville.com.

Copyright (c) 2010, The Florida Times-Union, Jacksonville

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