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New Bidder Emerges for Bankrupt Sea Island Company
Sending Sale of Resort to Auction

By Nevin Batiwalla, The Brunswick News, Ga.McClatchy-Tribune Regional News

Oct. 05, 2010--A partnership of an equity firm previously associated with upscale hotels and the owner of pro sports teams has formally offered to buy bankrupt Sea Island Co., sending the sale of the luxury resort operator to an auction Monday.

Starwood Capital Group, which until 2000 controlled such hotel nameplates as St. Regis and W, and Anschutz Entertainment Group, which owns the Los Angeles Kings of the NHL and the pro soccer Los Angeles Galaxy, submitted the only competing bid at a Monday deadline to buy Sea Island Co. out of bankruptcy.

Neither the amount of the offer nor its terms was immediately available. The offer was delivered to Sea Island Co. and its creditors, and not filed initially with the U.S. Bankruptcy Court overseeing the case.

The offer, however, had to top the $197.5 million that a partnership of two equity firms -- Oaktree Capital Management of Los Angeles and Avenue Capital Group of New York City -- had negotiated with Sea Island Co. before it filed for Chapter 11 bankruptcy protection from creditors Aug. 10.

Sea Island Co. Chief Executive Bill Jones III said in a prepared statement Monday, "as we have shared before, we are supportive of a competitive auction process, and we are pleased to have moved one more critical step toward resolution. It is important for everyone to understand that this process ensures that the protections we negotiated in the (Oaktree-Avenue) offer for our members, employees and trade vendors will not be altered in any competing bid."

Starwood, which has been aggressively buying distressed properties during the recession, came up short in previous bidding that Goldman Sachs, the investment bank, conducted to find a buyer for Sea Island Co. before its bankruptcy. Sea Island Co. decided, instead, to fall into the arms of the Oaktree-Avenue partnership, operating as Sea Island Acquisition.

Then this past month, Starwood-Anschutz made a $199 million bid public for the company at a bankruptcy hearing in Brunswick.

Judge John Dalis said that offer could be made only under an established auction process, in which bidders would have to increase their offers in $1 million increments.

That auction is now scheduled for Monday at the Atlanta office of the King and Spalding law firm which represents Sea Island Co.

Since the 2008 economic collapse, Starwood's chief executive Barry Sternlicht has been one of the nation's most active buyers in the ravaged real estate market. The group has raised more than $3 billion and made several large buys.

In a recent transaction, it paid $554 million to acquire $4.5 billion in real estate loans from Corus Bankshares, a top lender for condominium construction before its collapse. In the Corus purchase, Starwood outbid the competition by 20 percent, leading some analysts to say it had overpaid and is too optimistic about the pace of the real estate market's recovery.

Starwood Capital Group, based in Greenwich, Conn., is no longer connected with Starwood Hotel and Resorts, the publicly traded company headquartered in New York City. The two split in 2000.

At the auction Monday, Starwood-Anschutz will compete against Sea Island Acquisition. At a minimum Sea Island Co.'s assets, including two Forbes Five-Star hotels, a luxury spa and four top-tier golf courses, will sell for the $197.5 million in cash that Sea Island Acquisition had agreed to pay.

After the auction and a vote by creditors on whether to accept or reject the overall bankruptcy plan, Sea Island Co. will ask Dalis to confirm it and a sale at a Nov. 4 hearing.

Dalis has ruled that Sea Island Co. has "full discretion and right" to "determine which bid constitutes the highest or otherwise best offer."

If Starwood-Anschutz prevails at auction, it must pay Sea Island Acquisition a $5.9 million break-up fee.

To enter the bidding, Starwood-Anschutz -- or any other potential bidder -- had to place a $10 million deposit and show that it is financially and legally capable of completing a purchase

The successful bidder must agree to nearly identical terms and conditions as the current agreement between Sea Island Co. and Sea Island Acquisition. The new agreement may contain terms that are more favorable to Sea Island Co.

No matter who wins the auction, all 1,400 active employees of Sea Island Co. will be offered employment by the buyer, the company has said. Jones, the company's third-generation chief executive, and David Bansmer, president and chief operating officer, will continue in their roles.

Sea Island Co., one of Glynn County's largest employers, said in its bankruptcy filing that it has $1.16 billion in debts.

The company's struggles stem from over-borrowing for an ambitious rebuilding of its flagship hotel The Cloister, after it had slipped to Forbes (then Mobil) three-star status in 2002.

The company embarked on an overhaul to regain the coveted five-star designation, spending so lavishly that it exceeded its $350 million budget.

In the attempt to turn the resort into a playground for the international ultra-rich, it out-priced itself for its loyal, longtime customer base of well-to-do Southerners.


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