Bankrupt luxury: High-end development puts itself in Chapter 11 to meet creditors' demands

A Utah judge ruled Tuesday that the owner of Promontory Ranch Club, a financially troubled development of high-end second homes near Park City, can continue paying its bills and employees while a bankruptcy court sorts out its money problems.

Utah 7000 LLC, the owner of the 7,224-acre master planned development, put itself in Chapter 11 on Monday after holders of some of the second-lien loans filed an involuntary petition on Friday.

The development, with 1,925 lots, of which 772 are sold, was financed with a $275 million first-lien loan and a $75 million second-lien credit.

The company didn't make interest payments due at the end of December on the second-lien credit.

Ken Cannon, an attorney for the petitioning creditor, Stanfield Bristol CLO, said that court approval was needed in order to allow the employees to resume receiving their paychecks.

"Courts understand the importance of having employees get paid and coming to work," said Cannon, who works with Salt Lake City law firm Durham Jones and Pinegar. He said the ruling also allows the development to continue paying its other operational costs.

Last month, Credit Suisse, one in a group of first lienholders, had petitioned Summit County's 3rd District Court to put Promontory Ranch into receivership, which would put the development and its assets under control of an outside party. That petition was denied.

In that petition, the group alleged that Utah 7000 LLC and its related corporations — Pivotal Promontory LLC, Pivotal Promontory Development LLC and Pivotal Promontory Capital LLC — failed to make $8.7 million in interest payments on the $275 million loan.

According to Cannon, the first lienholders swept Utah 7000 LLC's financial accounts to recoup their rightfully owed interest payments, leaving the company without resources to pay their other lienholders. He said Promontory had been paying its operational creditors, but neglected to pay its loan debt.

Stanfield Bristol CLO is among a group of second lienholders who asked the court the impose an involuntary Chapter 11 bankruptcy claim on Utah 7000 LLC. According to Utah 7000 LLC attorney, Dan Kelly, his client agreed not to contest the involuntary bankruptcy filing, thereby allowing "the smooth continuance of the operations" of the development.

"The individual owners are not impacted in any way," Kelly said. "The rights of those parties should not be affected by the involuntary petitions."