Fred Johnston, president of Baldy Capital Corporation, still hopes to reach an agreement to purchase the assets of Mount Baldy ski resort. However, a recent court action and an atmosphere of mistrust leave the prospects of such a deal uncertain. Another potential buyer has pulled back and the receiver is mothballing the resort. (Richard McGuire file photo)
As a bitter court battle shaped up over the potential sale of the Mount Baldy ski resort, a new would-be buyer has withdrawn a letter of intent to purchase.
As a result, the receiver, G. Powroznik Group Inc., is taking steps to “mothball” the resort for the 2015-16 ski season.
The court dispute was triggered on Nov. 30 when the receiver sought approval in a Vancouver court to proceed with a new offer from investor Gordon Kleaman, a North Vancouver realtor, who is working with experienced Alberta ski resort operator Joey O’Brien.
Baldy Capital Corporation, who operated the resort from January to March 2015 on behalf of the receiver, and intended to purchase it, filed an objection in the court, throwing a wrench into the court approval process.
As a result, the receiver, Gary Powroznik, has withdrawn his application except for a request to borrow an additional $300,000 against the resort’s assets to cover receivership costs.
This would bring borrowing through receiver certificates to $800,000. Receiver certificates take priority over other creditors.
Although Fred Johnston, president of Baldy Capital Corporation, said he wouldn’t oppose this remaining request to the court, he suggests the increased borrowings, “will likely jeopardize the probability of the current receiver’s certificate holders being paid out in full and seem designed only to pay the receiver.”
Kleaman said opening in time for the Christmas period was essential to any plan to open the resort this year.
“Otherwise it’s just a money loser,” he said in an interview last week.
Nor did Kleaman think there was enough security to commit the necessary money while the resort’s status is tied up in court.
Kleaman acknowledged that he is still interested in Mount Baldy over the longer term, but he didn’t wish to discuss particulars of what an offer might look like.
Kleaman said he would work with O’Brien on the ski resort side and other investors on the real estate portion.
O’Brien was president and chief executive officer at Fortress Mountain in Alberta from 2008 to 2014. Prior to that, he owned Ski Martock in Nova Scotia from 1979 to 2003.
The withdrawal of Poroznik’s court application last week meant the matter didn’t go to court last Friday as previously expected.
Nonetheless, affidavits filed in court by Johnston, Poroznik, secured creditor Scott Stark and others at Powroznik’s G-Force Group paint a detailed picture of the failed negotiations over the past year.
What emerges is different interpretations of a memorandum of understand (MOU) and an operating agreement, signed in December 2014, which allowed Baldy Capital Corporation to operate the resort early in 2015 until an asset purchase agreement (APA) could be negotiated.
Powroznik and Stark argue that Baldy Capital Corporation defaulted on those agreements by failing to produce funding on time and failing to reach an acceptable APA by the deadline.
As a result, they say the MOU was terminated in May 2015.
Despite this, they resumed negotiations with Johnston in the fall.
Johnston said he was able to provide $400,000 in financing last season, but he argued that an additional $100,000 required in January 2015 under the MOU wasn’t needed for operations and would have resulted in higher interest costs, resulting in less money to Stark.
He said he made the $100,000 available in April, but the receiver refused it.
Johnston also accuses Stark and Powroznik of not negotiating in good faith and suggests Stark was apparently “anxious to trigger a default.”
Powroznik argues the $100,000 came long after the defaults and said Baldy Capital Corporation refused to allocate the money to receiver’s costs as was agreed.
Powroznik and Johnston also argue over responsibility for $65,000 to pay suppliers and employees, with each insisting the other is responsible for it.
Meanwhile, employees like Mountain Manager Matt Koenig didn’t receive pay, according to court documents.
The December 2014 MOU set out a purchase price of $4.2 million for the resort’s assets, which would in the end largely be funded by a mortgage from Stark.
That price was subsequently dropped to $3.375 million in the fall as the two sides tried to patch together another agreement.
The court documents also show growing mistrust between the two sides, with Stark and Powroznik not believing Johnston had the necessary financing, while Johnston said he didn’t want to reveal the source of his financing for fear that there could be “interference by any other interest(ed) party.”
Johnston insists he did have financing when negotiations took place in the fall.
Nonetheless, two letters he presents as evidence show that finance companies were interested, but they were unwilling to provide financing without a signed agreement, their own due diligence and in one case approval of their board.
Negotiations broke down this fall because Stark insisted as a precondition to an APA that Baldy Capital Corporation would “provide satisfactory proof” that it had $750,000 in funding to close the deal.
A last-ditch, “drop-dead” offer presented by Johnston on Nov. 4, however, insisted, “there will be no confirmation of availability of funds to close from the purchaser until closing.”
Stark and Powroznik rejected this.
In his affidavit, Stark said, “In light of the failed negotiations with Johnston and Baldy Capital over the course of the last 10 months, I lost confidence in the ability of Johnston or Baldy Capital to honour its commitments and could no longer support a transaction with Baldy Capital.”
On the other hand, Stark said he believed Kleaman, who made the newer offer, “has the financial wherewithal to complete the purchase of the resort.”
With Kleaman’s letter of intent withdrawn, Johnston said he now plans to concentrate on business development plans for the resort for the 2016-17 season.
“We do still have to complete the purchase agreement and we’re anxious to do that as quickly as possible,” he said.
Whether or not Stark and Powroznik will be willing to negotiate with him again is another matter.
“The damage is done,” said Powroznik, referring to Johnston’s court objections.
Meanwhile, local skiers will have to turn to other hills in the area for their skiing this season.
RICHARD McGUIRE
Osoyoos Times
