The Games will go on: Whistler alpine venue not in jeopardy, but Intrawest is

Financially troubled Intrawest ULC insists the Games will go on at its flagship Whistler Blackcomb resort, but if it is forced to go through with a mid-Olympic auction, the ski resort giant could go downhill.
Intrawest spokesman Ian Galbraith stressed Thursday that reports its Olympic venue at Whistler, along with its other resorts, had been seized by its lenders are untrue.
He reiterated the Vancouver-based company's message that it's "business as usual" at the resort, which is going ahead with Olympic planning.
Private equity firm Fortress Investment Group LLC took on massive debt to acquire Intrawest for about $3.1 billion, made up of $1.38 billion of cash and $1.5 billion of debt in 2006.
But as the economic downturn set in, the value of ski resorts tumbled as cash strapped skiers vacationed less.
The new economic reality turned what seemed a lucrative acquisition into a liability for Fortress, which bought the properties during a real estate bubble, when money was cheap to borrow, said Kai Li, a business professor at the University of British Columbia who specializes in bankruptcy.
But with financing harder to obtain, the hedge fund can no longer afford to pay back its lenders, a group led by Lehman Brothers and Davidson Kempner Capital.
The group has been working with Fortress to restructure its debt and twice extended debt repayments. But the group delivered a notice to Intrawest on Jan. 8 to begin the foreclosure process after Fortress defaulted on debt declared due on Dec. 24, 2009.
"This is right after the financial crisis, so all the lenders are pretty cautious about their lending so they maybe want to cut their losses and contain damages," Li said.
Galbraith said while the economy hurt the business, along with the tourism sector in general, Intrawest has been generating strong cash flow from its resorts.
"That loan has been on the books for a while, it's not something that's happened because of the recession. It's strictly a refinancing issue."
Sources at the lenders said the timing of the auction, which falls in the midst of the Olympics, is due to a lack of progress in negotiations, and had nothing to do with the Games.
One source added that its highly likely the equity will not go up for auction and other channels of negotiation are more plausible.
Galbraith added the private company is still in talks with its lenders and its intent is to reach a settlement.
Will Marks, a hospitality industry analyst at JMP Securities also questioned whether the sale will go forward.
"Do we know that that's necessarily the intention or was that just a threat to Intrawest to pay down some of its debt?"
He added that Fortress does not want to sell Whistler and Tremblant, which are valuable assets because although earnings are under pressure now, there's a long-term upside to holding on to them. He estimated Whistler could be worth as much as $500 million alone.
Li said, despite free advertising from the Games, it would be difficult to find a buyer for the risky purchase, given the volatile financial markets.
If the auction goes ahead, there is a good chance the lenders themselves will end up with the equity purchase and an ownership stake in the company.
Li said if the lenders take an ownership stake, they would promptly liquidate the company's assets to get part of their money back.
"Equity ownership by Fortress could be completely wiped out and the lenders would become the new owners and they can do whatever they want with the assets."
Fortress' senior debt is secured by most of the Intrawest assets including Whistler-Blackcomb, site of the 2010 Olympics, Quebec's Mt. Tremblant and Ontario's Blue Mountain.