Jay Peak bombshell

[thetrailboss]

This is not surprising. That was a lot of money and hard to understand how they were going to make it back. When I went up there last year in March they were practically paying us to stay at the tram house. I think we got 2 nights in 2br unit for $400, which included 3 days lift tickets and water park for 4 of us.

Wow. Crazy deal.


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[BenedictGomez]

This is not surprising. That was a lot of money and hard to understand how they were going to make it back. When I went up there last year in March they were practically paying us to stay at the tram house. I think we got 2 nights in 2br unit for $400, which included 3 days lift tickets and water park for 4 of us.

And remember, they're still ADDING to capacity. There are going to be some phenomenal Jay Peak lodging deals a handful of years from now.

The downside, of course, is that I predict Jay is going to significantly increase lift ticket prices in the next few years.

 

[deadheadskier]

Well, they are about $15 under market rate for walk up purchases right now. All the major players in VT are $80+. Jay charges $69 ($64 if bought online). That's the same price as Bolton Valley.

 

[doublediamond]

I guarantee Jay Peak didn't put the money up for the festival. They are all run by promoters.

 

[VTKilarney]

I guarantee Jay Peak didn't put the money up for the festival. They are all run by promoters.

That may be true, but surely Jay intended to sell hotel rooms and other things to the concert goers.

 

[Edd]

Staying at that hotel and watching shows for a couple of days sounds great. My days of sleeping in tents at festivals are behind me. Just can't do it.

 

[SIKSKIER]

One of the bands playing at the Jeezum Crow festival posted a photo of their performance on Facebook. Ladies and gentlemen, I present to you the four season resort known as Jay Peak:

View attachment 13039

Thats cuz we were all at the Jerryjam festival in NH.

 

[HowieT2]

And remember, they're still ADDING to capacity. There are going to be some phenomenal Jay Peak lodging deals a handful of years from now.

The downside, of course, is that I predict Jay is going to significantly increase lift ticket prices in the next few years.

no doubt they will increase the ticket prices, but I think what we have seen in the past from other ski resort operators with big debt loads, is that they are forced to cut back on infrastructure maintenance and operating expenses and a vicious cycle sets in.

 

[Highway Star]

You could pretty much see this coming.

 

[thetrailboss]

We can only wait and see what happens.

 

[BenedictGomez]

Well, they are about $15 under market rate for walk up purchases right now. All the major players in VT are $80+. Jay charges $69 ($64 if bought online). That's the same price as Bolton Valley.

You're assuming $84 is market rate? That's a bit strong in my opinion. I think Jay Peak is currently fairly priced. I view them most similarly to Smuggler's Notch in terms of quality of terrain etc., and Smuggs is at $68. Sugarbush is just a few bucks more. Stowe is Stowe, and Killington can lick my balls with their price. As for Bolton, my guess is a fairly low percentage of people pay the posted walkup rate. There are plentiful coupons, and many of their clientele are locals as well

no doubt they will increase the ticket prices, but I think what we have seen in the past from other ski resort operators with big debt loads, is that they are forced to cut back on infrastructure maintenance and operating expenses and a vicious cycle sets in.

At this point, I'm more worried about the accounting than their ability to pay off (if ever) "investors".

If the recent report is accurate, I'd call this unprecedented, at least to my knowledge I cant think of another instance where this much money has been awarded with no external reporting obligations - or, more accurately, where the reporting obligations have simply not been complied with and nobody seems to care.

I think we're at something like > $300 MILLION dollars at this point with absurdly loose financial controls. And there's several hundred million more EB-5 dollars waiting on deck! The total figure is 3/4 BILLION dollars.

This is the type scenario that has the potential to be a Bernie Madoff wet-dream. Perhaps not a single penny has been spent improperly, and perhaps every contract was given due to competitive bid and merit rather than "my wife's brother runs this paving company", but the alarming thing is that the State of Vermont currently doesn't have a clue either way. It's positively remarkable!

 

[dlague]

Sugarbush is just a few bucks more.

Sugarbush on weekends is the same price as Killington $89 - Mt Ellen only at Sugarbush is $69 like Jay Peak. Mt Ellen is nothing like Jay Peak!

 

[thetrailboss]

You're assuming $84 is market rate? That's a bit strong in my opinion. I think Jay Peak is currently fairly priced. I view them most similarly to Smuggler's Notch in terms of quality of terrain etc., and Smuggs is at $68. Sugarbush is just a few bucks more. Stowe is Stowe, and Killington can lick my balls with their price. As for Bolton, my guess is a fairly low percentage of people pay the posted walkup rate. There are plentiful coupons, and many of their clientele are locals as well.

I might be wrong, but Sugarbush was in the $80 range. Let's face it though because of Jay's distant location they have to be a bit lower price.

At this point, I'm more worried about the accounting than their ability to pay off (if ever) "investors".

If the recent report is accurate, I'd call this unprecedented, at least to my knowledge I cant think of another instance where this much money has been awarded with no external reporting obligations - or, more accurately, where the reporting obligations have simply not been complied with and nobody seems to care.

I think we're at something like > $300 MILLION dollars at this point with absurdly loose financial controls. And there's several hundred million more EB-5 dollars waiting on deck! The total figure is 3/4 BILLION dollars.

This is the type scenario that has the potential to be a Bernie Madoff wet-dream. Perhaps not a single penny has been spent improperly, and perhaps every contract was given due to competitive bid and merit rather than "my wife's brother runs this paving company", but the alarming thing is that the State of Vermont currently doesn't have a clue either way. It's positively remarkable!

I see myself moving increasingly more to this POV, especially considering the (lack of) oversight and issues that are appearing.

 

[noreasterbackcountry]

Except that ASC's creditors had some recourse.

This brings up a good point.

The money comes from investors and not lenders/creditors...

Are they (Jay) really in a worse position than those companies who borrowed big money from banks to fund expansion?

For all the flak this program takes you would think people were upset that they didn't go out and borrow gobs of money from investment bankers to do these projects.

And as for lack of oversight, name a private (non-publicly traded) company with more oversight.

For each immigrant investor/owner USCIS has to approve the business plan, source of the funds, verify the funds were legally obtained and perform extensive background checks looking into their health and arrest records- for themselves and their family members. Two years after the initial approval they go through it again.

In addition, each of the businesses are subject to oversight by the regional EB-5 center under a plan that was approved by the Federal Government. Any material changes to the business plan requires re-approval from the EB-5 center.

Further, the regional center provides yearly reports to USCIS for re-accreditation which include figures on how and where capital was spent.

 

[thetrailboss]

This brings up a good point.

The money comes from investors and not lenders/creditors...

Are they (Jay) really in a worse position than those companies who borrowed big money from banks to fund expansion?

For all the flak this program takes you would think people were upset that they didn't go out and borrow gobs of money from investment bankers to do these projects.

One key aspect for many EB-5 programs is that they CAN'T get traditional financing. They all are deemed, for one reason or another, too risky for traditional financing options. The EB-5 route is supposed to be an avenue for these riskier projects to get funding that they need and, theoretically, create jobs and more opportunity.

And as for lack of oversight, name a private (non-publicly traded) company with more oversight.

In addition, each of the businesses are subject to oversight by the regional EB-5 center under a plan that was approved by the Federal Government. Any material changes to the business plan requires re-approval from the EB-5 center.

Further, the regional center provides yearly reports to USCIS for re-accreditation which include figures on how and where capital was spent.

This is the specific issue here--that from the article it appears that the VT center did not really look to closely at JPR's business plan/internal operations.

 

[BenedictGomez]

Sugarbush on weekends is the same price as Killington $89 - Mt Ellen only at Sugarbush is $69 like Jay Peak. Mt Ellen is nothing like Jay Peak!

My bad then, for some reason I thought it was ~$75.

I might be wrong, but Sugarbush was in the $80 range. Let's face it though because of Jay's distant location they have to be a bit lower price.

Absolutely. Their remote location versus competitors has always been their biggest hurdle.

For all the flak this program takes you would think people were upset that they didn't go out and borrow gobs of money from investment bankers to do these projects.

Jay couldn't have. No investment bank would have lent them this money, because it's not a financially responsible investment with a suitable return.

And as for lack of oversight, name a private (non-publicly traded) company with more oversight.

That receive money that's touched government hands; all of them?

In addition, each of the businesses are subject to oversight by the regional EB-5 center under a plan that was approved by the Federal Government.

Which we now know isn't happening.

Did you read the article in full? This is a total black box.

 

[noreasterbackcountry]

Where does it say that they didn't look closely at the internal documents/business plan?

What I see is that the regional center received complaints from disgruntled investors who felt they weren't being paid back fast enough and were being converted to unsecured note holders (from unsecured ownership interests), the Center read the agreements to see - lo and behold- everything that Jay was doing was called for in the contract, and told the investors what they found- Jay had a right to do what they were doing.

I see this as investors who were probably given rosy projections on how quickly they would be paid back, ignored any language in their agreements about the "at risk" nature of their investment, and are now throwing around allegations of fraud to try and leverage a better payback schedule (and secured status) knowing that Jay and QBurke are highly sensitive to public perception.

 

[noreasterbackcountry]

Jay couldn't have. No investment bank would have lent them this money, because it's not a financially responsible investment with a suitable return.

All the more reason to be in favor of the EB-5 program. They allow for development that investment bankers view as too risky. Although you should also note that per the article there is private equity investment in Jay--- so somebody did think it was a decent opportunity, albeit not to the tune of $600 million.

I also wouldn't go too far with the "banks only do reasonable investments" argument.

The point is that Jay is in a much better position than those companies that leveraged themselves to the teeth with loans. I'm guessing that 1% rate to the investors is much better than the interest other places are paying on their loans.

 

[timm]

At this point, I'm more worried about the accounting than their ability to pay off (if ever) "investors".

Bingo. Even if nothing shady IS going on the absence of reporting is just as troublesome as any evidence of bad intent. Incompetence can destroy just as fast and easily as malice.

 

[VTKilarney]

IMHO, what we are seeing is Jay Peak's acknowledgement that they can't afford to pay these investors back. As I said earlier, they are circling the wagons based on this reality. So far we have seen two strategies:
1) Kick the can down the road by promising small payments for a few years and then a balloon payment at the end. The theory is that this would keep them happy so long as the small payments are being made.
2) Structure things so that there is no recourse for investors who are not paid back. Changing their status to unsecured creditors is an example.

The biggest problem is that by doing this the EB-5 gig is up for Jay Peak. Nobody in their right mind is going to fork over $500,000 to these folks from this point forward. So what you see is what you are going to get. And it gets worse. I suspect that no creditor in their right mind would touch Jay Peak with a ten foot pole from here on out. Even if they don't have to pay their "investors" back, they still have massive amounts of debt on their books. So it's probably safe to assume that they aren't going to be spending any significant money on operational improvements in the foreseeable future. This alone will put them at a disadvantage in the marketplace.

If there is trouble for Jay, here is where I see it coming from:
1) The feds and/or state intervene. (doubtful)
2) Jay gets mired in litigation. (possible)
3) Revenues don't meet the expenses of running all of these new facilities. (Based on my anecdotal observations, this is possible.) Water parks and golf courses aren't cheap to run. Hotels need customers more than five months out of the year in order to break even.
4) Jay can't make necessary operational improvements to stay competitive in the marketplace. (questionable) Jay's lift system, for example, leaves a lot to be desired.

Some folks assume that litigation is out of the question because the contract allowed for the changes that Jay Peak implemented. I wouldn't be so certain about that. First of all, anyone can sue anyone. Even if Jay wins, it's going to cost them money to get to that point. Secondly, I can think of several possible claims. Two of the possible claims are: a) fraudulent inducement; b) failure to follow professional standards.

One wildcard to all of the above: I suspect that there are actually several different companies. It's not all "Jay Peak" on paper. The structuring of these companies may make my analysis way off base.