Wednesday, June 23, 2010

Goldman Sachs Takes A Mulligan

No hole in one for the Federally bailed-out Goldman Sachs. A judge has determined that they can't foreclose on the posh Sawgrass golf resort in Florida.

A large group of Irish investors bought the resort a few years back, when money was no object and everything on the horizon was golden. Turns out that gold-tinged hue was a firestorm of bad debt that swept through RQB Resort LP and left nothing but ash and dust in its wake.

The group filed for Chapter 11 bankruptcy protection and sat down with Goldman Sachs to reorganize the bloated debt. They proposed an extension to give them more time to pay the loan, and they asked for a lower interest rate that accounted for the steep decline in revenue. Fewer resort guests meant a drop in income, and RQB thought that they might work out a deal with Goldman Sachs that would have the debt burden equalized to the new, reduced level of cash flow.

Sure the property is worth half what RQB paid for it, but Goldman Sachs saw a positive outcome down the road and they wanted to get their hands on the Florida resort. Hence, they foreclosed.

Not so fast said the judge in Jacksonville. The Irish investors can have until the end of December to put together a restructuring plan. They'll have time to get the property appraised so that the court can determine how much Goldman Sachs might be able to realize.

A little too greedy was Goldman Sachs, trying to snag a resort with potential before the owners could work with the courts to restructure their debt.

That's the point of Chapter 11. A debtor is allowed to spread his losses around amongst his creditors, who are supposed to be happy to get something rather than the nothing they'd get if RQB went belly-up. Having swamped investors with Goldman Sachs-created losses during the sub-prime mortgage orgy, the investment firm didn't want to end up on the short end of its own stick.

What's next for Goldman Sachs in the wake of this loss? They could always call in favors from their hirelings in the Congress and get the bankruptcy laws modified, but in some quiet and discrete way. The voting public has no stomach for their antics and the politicians, who love Goldman Sachs campaign contributions, realize that they still have to win an election that's decided by a lot of unhappy citizens.

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