A federal bankruptcy judge in Roanoke, Va., denied a plea this week from the owner of financially troubled Massanutten Village for more time to put together a $35 million bailout plan.
Officials with the Union National Bank of Pittsburgh, the largest secured creditor of the bankrupt resort, said the ski and hotel facilities, the time-share development and 500 undeveloped lots would be sold to a Charlottesville partnership for $3 million by Oct. 25, under a reorganization plan approved by the court in September.
Time-share development at Massanutten -- a four-season mountain resort in the Virginia Blue Ridge with a golf course, ski mountain, hotel and conference center, individual homes and 150 time-share town houses -- slowed to a halt early in 1983 when construction companies filed $120,000 in liens in Rockingham County Court against developer First Federal Corp.
A bailout financing plan, put together by First Federal's President John Swaim, fell through later in the year. When Union National, which holds $7.5 million in loans secured against the property, threatened to foreclose in December, First Federal and subsidiary corporations Lake Placid Club Lodges, Lake Placid Co. and First Federal Mortgage Corp. filed for bankruptcy.
Creditors in the tangled case originally supported a second First Federal bailout plan, put together with the help of a Texas firm, First Houston Capitol Resources Fund Ltd. That plan called for selling the assets at Massanutten and sister resort Lake Placid Club Lodges in New York for $35 million, along with half of the equity shares in a new company formed to continue time-share development at both resorts. Swaim would retain the other half of the equity in the new company, recently chartered as Berkeley Resorts Inc.
First Houston could not find an investor in the time the court allotted, however, and refused to back its commitment to find financing with a $350,000 earnest money deposit. Judge H. Clyde Pearson, after repeated delays to give First Houston more time, finally moved to approve a reorganization plan proposed by Union National.
As part of the UNB plan, the court has appointed a trustee to recover funds allegedly transferred out of debtor company First Federal to other subsidiaries. The court also has ordered the cases of Lake Placid Co. and Lake Placid Club Lodges to be transferred to bankruptcy court in New York, and First Federal Mortgage Corp. to be liquidated.
Creditors with claims junior to Union National's, however, believe they are far less likely to recover funds from efforts by the trustee than they would if the $35 million bailout proposed by First Federal and First Houston worked out. There are more than $40 million in claims other than Union National's against the four debtor companies. Other creditors have asked the court to delay the sale pending hearings on unresolved issues concerning some of the assets at the mountain resort.
Pearson heard a motion on Wednesday from Commonwealth Capital of Charlottesville, one of the unsecured creditors in the bankruptcy facing a $400,000 loss. Commonwealth Capital offered to post a $350,000 bond on behalf of First Houston, to be forfeited if First Houston did not come up with a binding $35 million financing agreement within 60 days.
Roanoke lawyer and former state senator William B. Hopkins Sr., representing First Federal, told the court First Houston was still working to come up with the financing plan and might have a binding contract for the court to see by next week.
The court rejected that offer, however, on the grounds that a bond was inadequate.
"The judge was very clear in saying that a bond was unsatisfactory," said Union National attorney John Sills. "He said only a cash deposit would work. He said that he didn't want to have to litigate to release the bond money if the debtor failed to come up with the money." Sills said that UNB's plan will remain in effect unless the court takes action to stop it.