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Sea Island Agrees to Sell its Golf Courses, Hotels, Spa, and Beach Club for
 $197.5 million to Oaktree Capital Management and Affiliates;

Resort Continues Operations with no Disruptions

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

Aug. 11, 2010 - --ST. SIMONS ISLAND -- Uncertainty has given way to guarded optimism the day after Sea Island Company declared bankruptcy. In its filing for Chapter 11 protection from its creditors in U.S. Bankruptcy Court, Sea Island has agreed to sell its golf courses, hotels, spa, beach club and other resort properties for $197.5 million because it cannot repay the $482 million it owes.

Bill Jones III, the third generation head of the family-owned company, met with employees and club members Wednesday to explain what was done and how he expects things to play out. Employees declined to reveal what was said, but spokesman Michael Geczi said prospective buyer Sea Island Acquisition LP will keep all employees in their current positions. Jones will continue as chairman and chief executive officer and David Bansmer will remain as president and chief operating officer.

Sea Island Acquisition will also continue club memberships that are necessary to keep the golf clubs and resort properties viable, Geczi said. If no other buyer outbids Sea Island Acquisition in an auction, the new company should emerge from bankruptcy in November, he said.

Geczi said there will likely be some news in coming days that will sound bad to the uninformed. "Employees in a few days will receive a warn notice,'' he said. The federally required notices will inform the 1,400 employees that their jobs will be terminated in about 60 days, but they will be quickly rehired by the new owners, he said. "One minute all these employees will be terminated and simultaneously hired by the new company,'' he said. "Everyone will be offered their jobs in essentially the same circumstances as now.''

The new owners, who are principals in Oaktree Capital Management of Los Angeles and Avenue Capital Group of New York, are familiar with Sea Island's traditions and reputation for service and want that to continue, Geczi said. "These owners recognize the value of these clubs is the membership and the employees,'' he said.

Some in the close-knit business community of adjacent Sea Island and St. Simons Island were hoping a bright future is on the horizon for the company. "As a company and individual, I certainly pray and wish the best for the Jones family. But I also welcome the new owners as part of the Sea Island family," said Vicki Palonen, president of Its All About You, which does all of the monogramming work for the company. Palonen has relied on the company and it has relied on her for 22 years. She doesn't see that changing. "All the speculation about the bankruptcy added a lot of anxiety and uncertainty. But now, that's all behind us and I think everything will calm down. I feel like this will be a good thing for them and everyone."

There is more to the bankruptcy filing, however, than Sea Island selling off assets so its creditors can get a small portion of their money back. The bankruptcy filing includes a list of the top 30 unsecured creditors, 19 of whom have claims under employments obligations.

Topping the list is Dennie McCrary, a former company president and Sea Island resident, who is owed more than $27 million. Also on the list is David Everett, who is owed $3.6 million. He was in charge when the company got so deeply in debt. It was during his tenure that the company payroll jumped from $35 million to $85 million and the number of employees more than doubled to 2,500.

Among others claiming employment obligations are Matt Hodgdon, former chief financial officer now the Georgia Aquarium, who is owed $3.5 million. Some of the employees are owed deferred compensation meaning they deducted money from their pay each month and invested it in the company. Taxes were deferred on that pay until the employees retired and took the money out.

The Pension Benefit Guarantee Corp.'s Department of Insurance Supervision and Compliance has a claim of $13 million. The federal agency insures and oversees defined benefit pension plan like Sea Island's. Ceczi said the plan is totally funded and everyone is protected.

The Pension Benefit Guarantee Corp. disagrees. "There is a shortfall in the pension plan,'' agency spokesman Jeffrey Spicher said. "That's not to say the company is behind on its contributions, but if the pan were to terminate today, there would be a shortfall.''

Spicher also said there is nothing to indicate the pension plan will be terminated by the new owners. In a release announcing the bankruptcy, the company said all club members will be allowed to enjoy the same benefits and services at the respective golf and other clubs and receive full credit for membership deposits. That could be good news for real estate agents. Houses on the market that had Sea Island memberships have been sitting unsold for more than a year because of doubts the memberships would be honored and transfer to new owners. "The memberships will become valuable again and enhance the value of the property,'' said Gene Hoaster, a St. Simons real estate agent.

Sea Island also provided happy memories for vacationers and others with an atmosphere that catered to families. Anne Marlboro of Atlanta said her parents honeymooned at the Cloister. Although she has never stayed there, she was window shopping at the Cloister Collection, one of the boutiques at the Shops of Sea Island shopping center near the causeway to Sea Island. "Mom and Dad loved it there. I hope they can keep it the way it was because you don't find many places with that same old time elegance," Marlboro said.

It was an upgrade of the elegance that got the company in trouble as it built the Lodge at Sea Island on St. Simons and tore down and rebuilt the Cloister, its Beach Club and spa. It greatly reduced the number of rooms and more than doubled rates. For a time, the company was relying on its real estate sales to prop up its resort business, which was losing $80 million a year. When the real estate markets crashed, Sea Island couldn't come anywhere near meeting it obligations and defaulted on loans approaching $300 million on Jan. 10, 2009. Three months later, the company restructured its loans but still didn't make payments.

More than a few Sea Island guests and employees routinely eat at Brogen's North, also near the island causeway. Rene Reyes, restaurant manager, doesn't expect the ownership change to impact their business much. "If everything stays the same, we should be fine and will ride out the rest of this recession storm OK. But if they start cutting jobs, we could be in trouble," Reyes said.

Glynn County school system officials are keeping a close eye on the bankruptcy. Assistant Superintendent Andrea Preston, who oversees district finances, expects the school system will lose an as yet undetermined amount of property tax revenue. "The sale price is less than the property value on the tax digest, and that means we will receive less property tax revenue next year," Preston said. Still, Sea Island is hosting an event in October that should bring some money to area businesses.

The PGA Tour's inaugural McGladrey Classic will be played on Sea Island's Seaside Course Oct. 7-10 on the south end of St. Simons Island. Famed golf course designer Tom Fazio updated Seaside in 1999 to mimic a spectacular Scottish links course. Fazio is listed among the unsecured creditors. His claim is for $850,000. (912) 264-0405 (912) 264-0405


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