September 25, 2010 --Facing debts that now total $1.16 billion, Sea Island Co. is in a race against time to emerge from bankruptcy and be sold before its money runs out.

While all parties to the massive bankruptcy say at this point they consider it unlikely that the luxury resort operator will run out of money and have to close its doors, the company has acknowledged the possibility in bankruptcy court filings.

The company is losing money so fast that its lawyers have said it has less than 50 days'of money left on which to operate.

While the company has an agreement to be sold to a partnership of equity firms for $197.5 million, that sale likely will be tested in an Oct. 11 auction, with at least one other bidder already telling Bankruptcy Judge John Dalis that it wants to make an offer.

With less than 50 days of operating cash on hand -- much of it in the form of a debtor in possession loan to keep the company operating until it can be sold out of bankruptcy -- an anticipated Nov. 4 conclusion to the bankruptcy looms as critical.

In a complex legal case involving thousands of creditors and enough lawyers to fill a federal courtroom in Brunswick, the total amount of claims against the resort operator has been a moving target.

The figure started out broadly -- $500 million to $1 billion, the company estimated in its initial filing for Chapter 11 bankruptcy protection Aug. 10. It has climbed along with the number of claims that have since come forward.

The company's problems began in 2003, at a time when banks were eager to lend, as it pursued an extensive rebuilding of its flagship The Cloister, on Sea Island.

"The banks almost pay you to borrow money today," Sea Island Co.'s third-generation chief executive Bill Jones III told Cigar Aficionado magazine in 2003 in a rare interview about the luxury resort operator.

And borrowers were apparently eager to spend.

In Sea Island's case, it splurged on restoring The Cloister, after it had slipped to Forbes (then Mobil) three-star status in 2002. Under the direction of Jones, who envisioned the resort as a playground for the international ultra-rich, the company embarked on an ambitious overhaul to regain the coveted five-star designation, spending so lavishly that it exceeded its $350 million budget.

Caught, too, in the snare of national financial and real estate meltdowns, the company is now under bankruptcy protection to keep creditors at bay and anticipating its sale to avoid a worst-case scenario of Chapter 7 bankruptcy liquidation, in which its assets would be sold piecemeal and nothing of its 80-year-legacy would remain.

The company entered bankruptcy with an agreement from a partnership of equity firms to purchase it for at least $197.5 million. The price could climb if other bidders emerge at the scheduled Oct. 11 auction in Atlanta.

Oaktree Capital Management of Los Angeles and Avenue Capital Group of New York City, two equity funds specializing in distressed properties, can back out of the purchase agreement, but would forfeit a $10 million deposit.

Sea Island Co., through a Chicago-based public relations firm it hired to handle communications during its tumultuous bankruptcy period, says liquidation is a "very minute possibility" and it is "confident about closing the sale of our assets."

"Our liquidity was strengthened by the bankruptcy court's approval of two motions -- the DIP (debtor in possession) financing and the use of cash collateral -- as well as the company's strong performance since filing day with resort customer support and trade vendor support," said Michael Geczi, acting as Sea Island Co. spokesperson during the bankruptcy.

"We have consistently stated since our (bankruptcy) filing that our liquidity is more than adequate to complete the process, and nothing has changed that belief."

There would be almost no winners if Sea Island Co. were to be sold piecemeal in a Chapter 7 liquidation, Sea Island says.

It would mean that 1,400 employees would lose their jobs and that the two membership clubs within the resort would disappear.

Creditors who are owed money would also likely see their returns drop.

Three banks, owed a combined $566 million, are expected to recover 30 cents for each dollar they loaned Sea Island Co. if it is sold, as it anticipates, to the partnership operating as Sea Island Acquisition. In liquidation, the banks would likely get back 16 to 22 cents for each dollar, the company said in a bankruptcy court filing.

The same smaller recovery would also apply to unsecured creditors, who, unlike the banks, hold no collateral that could be sold to secure payments of their debts.

"Sea Island is losing money and can't stay in bankruptcy long," said Jordi Guso, legal counsel for the committee of unsecured creditors. "It's not good for the brand to be in bankruptcy long. I think it is in everyone's interest for it to be sold and move into the hands of a well-capitalized buyer."

If a sale to Sea Island Acquisition happens, much of the $585.6 million owed to specified unsecured creditors would be assumed 100 percent by the purchaser. Still, other creditors would only see 3 cents on the dollar of their claims for at least $100 million.

In a liquidation, which Sea Island Co. said in a court filing would likely bring in $120 million to $155 million, compared to the minimum of $197.5 million a sale would generate, some creditors would be left with basically nothing.

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