Vote tally today on Cliffs’ immediate future …and the much longer term

        Votes from members at The Cliffs Communities holding the note on a $64 million loan to founder Jim Anthony are due today on the decision that could throw their mega-community's amenities a lifeline.  Noteholders were advised at a Wednesday meeting led by those negotiating with developer John Reed that in order for the Cliffs golf clubs to stay open beyond this week, the noteholders will be required to “subordinate” their claim to repayment of the large loan so that Reed can provide bridge financing to the clubs.  The requested bridge financing is for $2 million.  By “subordinating” the loan, the noteholders would be in line for repayment only after Reed is repaid (in the event negotiations for the purchase of The Cliffs break down).  The noteholders each contributed $100,000 and more to the bulk loan to Anthony.  With the developer's recent default, the noteholders essentially own the amenities but do not have the funds to operate them.

        Another suitor, the Stokes Land Group out of Jacksonville, FL, made an 11^th hour revision of an earlier offer, but it was tendered too late to be

included in the Wednesday meeting. Stokes claims 65 projects in the southeast, including Marsh Landing Country Club in Ponte Vedra Beach, FL, where homes are priced from the $200s to the multi-millions. One Cliffs member told us that the Stokes proposal will “create the competition necessary to aid both the noteholders and non-noteholders moving forward.” Non-noteholders, in response to a call for comments and questions from a Cliffs advisory group formed to share communications about the current situation, had indicated some angst about being repaid their initiation deposits on a slower schedule than the noteholder group.  At a Thursday night meeting, the non-noteholders themselves were given the same presentation as the noteholders.

        “I would be shocked,” our Cliffs member contact told us, “if the noteholders did not agree to [the] subordination.”

       If the noteholders do agree to the subordination, the process of a Reed or Stokes purchase of remaining real estate and the seven golf clubs would likely proceed as follows:

        ClubCo, the entity that holds the “senior” debt on The Cliffs’ amenities as a result of the big loan, will declare bankruptcy, clearing the way for Reed or Stokes to fund the clubs’ operations through Debtor in Possession financing; noteholders also will be asked to subordinate their claims to this

financing through a second vote later. The bankruptcy court will sort through all the claims, with input from the winning bidder (Reed or Stokes). A reported 70 or more liens on The Cliffs’ amenities could extend bankruptcy proceedings, but the bankruptcy court will be inclined to look with favor on any comprehensive plan offered by Reed or Stokes and backed by membership groups.

        Members of the Cliffs clubs will be asked to “renew” their memberships with a special transfer fee (estimated at $8,000) that our member contact characterized as covering “past sins of the Cliffs management,” as well as to help the new owners with temporary financing. Once the club is out of bankruptcy, the new owner will assume management of both the real estate and amenities operations; it is conceivable that Reed and Stokes could forge some last-minute partnership arrangement to avoid a self-defeating bidding process. (Note: This last possibility is an assumption on the author’s part, not interpreted directly from any reports.)

        “Overall, I am very optimistic about the future,” our Cliffs member told us. “I think we will end up with new, stronger, smarter management.” Whoever that turns out to be, he said, “has shown a much stronger ability to manage for business cycles than Anthony [did].”