Sunterra Exits Ch. 11 With $300M Line of Credit From Merrill Lynch

Sunterra also hopes it can recover its former industry status with a $300 million line of credit from Merrill Lynch Mortgage Capital Inc. Terms of that transaction weren't disclosed. Sunterra officials couldn't be reached at GlobeSt.com's publication deadline.

"We are now poised to re-establish the company as the global leader in the vacation ownership industry," Sunterra CEO Nick Benson says in a prepared statement.

Sunterra voluntarily filed for Chapter 11 protection under the U.S. Bankruptcy code May 31, 2000 after two groups of creditors started pressing the developer for repayment of loans, according to court records. One group was owed $600 million; the other, $250 million.

In its Chapter 11 petition, Sunterra listed liabilities of $850 million and assets of $1 billion. Cypress Pointe Resort in Orlando is one of the company's more successful properties.

Sunterra's emergence from bankruptcy protection comes as its $150 million civil federal court lawsuit continues in Orlando against accounting firm Arthur Andersen. The suit alleges Andersen should have detected Sunterra's weakening financial condition in 1998 and 1999 and notified the company instead of providing "a false impression of financial well-being." Andersen denies the charges.

One of Sunterra's biggest hurdles and successes in Chapter 11 was repaying a $105 million debt to Finova Capital Corp of Farmington, CT. Sunterra did it with a $210 million, court-approved term loan package it received in April 2001 from Greenwich Capital Financial Products of Greenwich, CT.

The $105 million payoff to Finova represented a discount from par of about $25 million, Sunterra officials said at the time in a prepared statement.

Sunterra also helped itself while under Chapter 11 status by retaining New York-based Insignia/ESG Hotel Partners to sell 30 of its 89 timeshare properties, court papers show. Real estate turnaround specialist Jay Alix & Associates of Southfield, MI guided Sunterra through its financial morass.

The developer received good news last month when the bankruptcy court approved its request to terminate a timeshare-unit exchange services contract with Scottsdale, AZ-based Resort Condominiums International and align itself instead with Miami-based Interval International. Terms of that deal were not disclosed.

Sunterra's saga under Chapter 11 illustrates the perils of a company growing too quickly, financials filed with U.S. Bankruptcy Judge Arthur B. Briskman show.

Sunterra was created in 1992 by a local group of real estate investors pooling nine timeshare properties. Early successes led to the company going public in 1996. The firm's buying spree started in 1997. The company showed mercurial profits in 1998 and 1999. And then the fiscal roof caved in.

In Sunterra's last reported quarterly statement filed with the Securities and Exchange Commission for the period ended March 31, 2000, the company says it lost $15.6 million versus a profit of $10 million in the comparable 1999 period.

Delinquent accounts totaled $43 million. Sunterra trimmed its global workforce of 7,800 to 6,300 and stopped several construction jobs, including its half-completed $22 million headquarters building in the former 100,000-sf Montgomery Ward retail center on Colonial Drive in east Orlando.

Three months later on May 31, 2000, Sunterra filed for Chapter 11 protection.