Scots bank bails out US country club

Published on Tuesday 9 September 2008 21:13

BANK of Scotland has stepped in with an extra loan to keep a luxury country club and housing resort in the US afloat while a sale is finalised.

The Edinburgh-based bank, which is owed about $21 million (11.9m) by the Diablo Grande resort, has offered extra credit facilities to support the development, founded by US tycoon Don Panoz, the entrepreneur behind the St Andrews Bay hotel in Fife.

A Mexican company, World International, which operates resorts, hotels and industrial developments in central America, has offered $21m for the Californian development – $5m below the minimum bid specified by the Diablo Grande partnership.

A Sacramento Court was yesterday poised to decide whether the sale would go ahead.

A spokeswoman for Diablo Grande last night told The Scotsman: "A court case is taking place today and we will issue a further statement in due course."

A further three bids were received for the development in an auction, but World International's offer was the highest.

It is understood that Bank of Scotland has put up a further $200,000 so that Diablo Grande can continue operating for long enough to give the sale a chance to go through.

At a Sacramento Court hearing, Diablo Grande's attorney asked the judge to delay his decision on the future of the company to complete the sale agreement and settlement among the creditors.

The company was granted until this week for a buyer to be finalised.

Panoz himself – who is credited with the invention of the nicotine patch in his previous position as founder of Elan Corporation in Ireland – is also understood to have supplied the company with extra emergency funding. It is believed the firm eats up about $1m a month in holding costs alone.

The development originally included plans for a hotel, conference centre and shops, but a string of financial and practical issues – including problems with the water supply at the site, which is eight miles from the nearest shop or petrol station – blighted its progress.

Bank of Scotland was earlier this year named as the main creditor of Diablo Grande, which boasts about 400 homes and had ambitions to increase that to 1,200 as well as a golf course.

It fell victim to the US housing slump and was forced to seek Chapter 11 bankruptcy protection in March.

The property downturn hit sales of the resort's luxury homes, which are on the market for up to $2m.

The bank then forked out an extra 1m loan to keep the resort operating until August, amid interest from a number of interested potential buyers.

Chapter 11, which does not exist in the UK and is more akin to administration in this country, protects businesses from creditors while they restructure to become profitable.

If the sale does not go ahead, the development could slip into Chapter 7 liquidation.

Bank of Scotland refused to comment.