Maximizing Stakeholder Value through Restructuring and Asset Optimization in the Leisure and Hospitality Industry
Restructuring/Interim CFO and COO/Strategic & Operational M&A
Pacific Monarch Resorts (PMR), a leading developer and operator of luxury vacation ownership properties across the US and Mexico, was facing the largest financial crisis since their founding. Following the real estate and financial markets collapse in 2008 – as with many real estate investment and vacation property owners – PMR’s assets and debts were under significant financial distress.
Facing the breach of numerous financial covenants with its primary lender and requiring increased financial advisory and strategic direction, PMR hired Mackinac Partners in 2009 to lead financial restructuring efforts. Jim Weissenborn, Mackinac Partners’ Managing Partner, was appointed as the Chief Restructuring Officer for PMR. Mackinac Partners was instrumental in structuring the Company’s forbearance agreement and assumed operational control of the Company’s construction, finance, and portfolio management operations. As part of the restructuring effort, Mackinac also filled other key interim management positions. Keith Maib and Nishant Machado acted as PMR’s Chief Financial Officer and Chief Operating Officer, respectively. Mackinac’s efforts resulted in streamlined operations, improved efficiency and profitability, and approximately $30 million in cost savings.
Mackinac was also successful in stabilizing the Company’s $275 million loan portfolio, thereby restoring value to the Company’s largest asset. This portfolio was eventually sold back to the Company’s primary senior secured lender, Resort Finance America (“RFA”), through a credit bid. After a detailed assessment of all of PMR’s other holdings, operations and debt obligations, however, the company and Mackinac collectively determined that the best course of action for value attainment was to consider a sale of properties and assets.
The company engaged Houlihan Lokey as investment bankers and an extensive marketing process ensued, culminating in a stalking horse bid by Diamond Resorts International (“Diamond Resorts”) on substantially all of PMR’s assets and the aforementioned credit bid from RFA on the mortgages receivable portfolio. On October 24, 2011, PMR and its subsidiaries filed for Chapter 11 bankruptcy protection, simultaneously executing asset purchase agreements with Diamond Resorts and RFA. After completing the required auction process and resolving complex and intricate structural and transactional issues in Mexico and the US, PMR successfully sold substantially all of its remaining assets – including inventory at nine resorts located in California, Nevada, Utah, and San Jose del Cabo, Mexico and agreements to manage certain of the resorts – to Diamond Resort, on May 22, 2012.
In addition to Mackinac Partners, deal negotiation and execution included the law firms Stutman, Treister & Glatt and Greenberg, Whitcombe & Takeuchi. Baker & McKenzie provided international advice, and Skip Gaskill, Esq. provided real estate regulatory advisory in the closing.
Pacific Monarch Resorts is now operating successfully and profitably within Diamond Resorts International. In August 2013, the subsequent sale of the Pacific Monarch Resorts Service Companies to Diamond Resorts International, as well as the purchase of Island One Resorts in Orlando, was completed through parties that included GWT, Katten Muchin (Diamond counsel), Morton M. Rosenfeld of Los Angeles; tax counsel Justin Bowen, of Palos Verdes Estates, and Mackinac Partners’ Managing Director Nishant Machado. The two deals added an additional 9 new properties, 13 new property management arrangements, and over 25,000 owner families to Diamond Resorts network.
“Coinciding with our initial public offering, these transactions will benefit our business by adding significant cash flow to our hospitality management segment and enhancing our owner base while enabling us to drive cost synergies” David F. Palmer, Diamond Resorts President and CEO said. “These types of acquisitions represent an excellent strategic growth platform for our business, and we look forward to fully integrating these resorts and their owners into the Diamond Resorts family.”
Mark Post, CEO of the PMR Service Companies stated, “I greatly appreciate Stephen J. Cloobeck’s integrity and value his friendship going forward as we continue to work together both in the US and Mexico. He has built a deep and dedicated team.”
Mackinac Partners’ Managing Partner and PMR’s CRO, Jim Weissenborn, said, “This was a great outcome for all parties involved. Diamond is acquiring a fantastic owner base and a solid sales and marketing platform built by the PMR team. In addition, Diamond is retaining a majority of PMR’s employees.”