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Bankruptcies put projects in King

By   /   Friday, June 5th, 2009  /   Comments Off on Bankruptcies put projects in King

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By Stephen Nellis and Emily Rancer

Central Coast hotel owner John King is gearing up for a long battle in bankruptcy court to launch Paso Robles as California’s next premier wine destination.

Before last year’s credit crunch, King was on the verge of creating a resort that promised to forever change the Paso Robles tourism scene. The Vaquero de los Robles resort would feature hundreds of rooms, a spa, bungalows, a vineyard and wine tasting facility, lakes and even golf courses.

But amid the meltdown in the financial markets, King’s lender, Textron Financial Corp., decided to quit the commercial real estate lending business. As part of its exit strategy, the Rhode Island-based creditor filed federal lawsuits against King for nonpayment of debt and threatened foreclosure.

But King, who owns several popular San Luis Obispo County hotels including Sycamore Mineral Springs near Avila Beach and the Apple Farm Inn in San Luis Obispo, was not ready to cede control. He pushed Vaquero de los Robles and Spanish Springs, a residential development project near Pismo Beach, into Chapter 11 bankruptcy reorganization on May 28.

In court filings, Textron alleges it is owed  $14.3 million total in unpaid loans for the Vaquero resort and Spanish Springs. King shot back in his court filings that the terms of the loans weren’t made clear up front.

By filing for bankruptcy protection, he put the lawsuits and foreclosure sales – which had been scheduled for June 1 – on hold, said William Beall, a Santa Barbara attorney representing Vaquero de los Robles. The Vaquero property listed $11 million in assets and $11.6 million in liabilities in its Chapter 11 filing in U.S. Bankruptcy Court in Santa Barbara.

King declined to return multiple requests from the Business Times for comment and his attorneys said they were told not to speak with media about the dispute. Textron and its representatives did not return phone calls.

But a review of court filings shows that King’s bankruptcy filings give the projects a fighting chance to reorganize and emerge on sounder footing. Chapter 11 of the bankruptcy code protects companies from creditor lawsuits while a company renegotiates its debts.

The main thing King bought is time to breathe – the Vaquero resort’s first bankruptcy status meeting is slated for September. The bankruptcies leave open the possibility that King could find new creditors to take over for Textron Financial.

Pepperdine University law professor Mark Scarberry said that above all, Chapter 11 opens the door to negotiations and puts nearly all options on the table. “Anything can happen” by the time negotiations are complete, Scarberry said.

King Ventures, a hotel management firm wholly owned by King, is one of the largest employers and private companies in San Luis Obispo County, with about 800 workers there and 1,000 companywide. Its 2007 revenue was $32 million, according to Business Times research.

In addition to seven popular Central Coast properties, King Ventures also owns the Inn at Oyster Point in South San Francisco and Two Bunch Palms in Desert Hot Springs.

Faced with the state budget cuts and shrinking property tax revenue, Paso Robles officials see the Vaquero resort as a potential white knight for the region’s tourism industry and economy.

“We’re sucking major wind,” Paso Robles City Manager Jim App said of the city’s fiscal woes. He said the resort’s potential sales tax revenues had not yet been factored into the city’s budget, which is now facing a $9 million deficit.

“What’s lost is the potential,” App said. “We have no destination resort in this county so we lose out on an opportunity.”

Mike Gibson, chief executive officer of the Paso Robles Chamber of Commerce, said the city’s sales tax revenue has plunged nearly 10 percent since the recession began. He said that having King’s Paso Robles project was considered “a fantastic thing to get us out of this economy.”

The Vaquero resort’s struggles haven’t hit Paso Robles yet because the project always seemed to be two years away, Gibson said.

“As far as the effect to us, other than another magnificent draw to our community, it was still so far out that we really didn’t start anticipating the revenue draw from that or the tourist attraction,” Gibson said.

Spanish Springs, the other property now in bankruptcy court, is part of a housing development planned near Pismo Beach. Spanish Springs listed $17.5 million in assets and $6.6 million in liabilities in its May 28 bankruptcy filing.

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