Ch. 5 Reports of a deal with lenders are premature, Intrawest claims

http://www.vancouversun.com/Reports+deal+with+lenders+premature+Intrawest+claims/2630965/story.html

Summary
Fortress Investment Group LLC, the New York private-equity and hedge fund, bought Intrawest in 2006 and they agreed to restructure its debt, including the injection of more equity in to the company. Under the terms, Fortress needed to put $150 million into company and divide its $1.2 billion US debt into 2 parts: one part would pay 10% interest and the second part would pay as much as 17%. Intrawest had also been reported that they had signed with a new deal of loans that can be extended to as much as 4 years. Intrawest had already sold 4 properties since November but they say that the sales are of non-core assets and they have no intention of selling properties where Intrawest owns both the ski hill and the accompanying village, like the Whistler-Blackcomb, Mont Tremblant in Quebec and Blue Mountain in Ontario.

Connection
In the textbook, there is an article about Intrawest and their debts problem. A company maybe profitable but they often have cash flow challenges and Intrawest is one of the examples. They have significant lead/lag relationships that affected their cash flows, since the length of time to complete a project and cash flowing back takes a long period of time. Their cash flow had a serious problem that lead to the heavy debt. According to the article, Fortress Investment Group used the increase amount of capitalization to solve the cash flow problem. The $150 million that Fortress put in didn’t help solve the debt problem. They should have concentrated more on the cash flow way earlier because their heavy debt started a long time ago. Intrawest began with a bad start. Their lead/lag relationship had contributed to the serious cash flow problem that can not be solved for years.

Reflection
The textbook wrote the article in 2007 and at that time, they already had debt problems. At the end of the article, it ended with a positive attitude that Intrawest would soon have reliable revenue streams because ski resort businesses mostly generate a steady cash flow. Three years have passed and Intrawest is still struggling to pay back the debt to their lenders. In my opinion, Intrawest have struggled too long with their debt problem, which makes them into a bad situation and harder to return their debt. Their debt keeps continue to enlarge along with interest rates and they would just owe more money to lenders. Intrawest should find a more efficient way of solving their situation, maybe by reducing the lead/lag relationships. I think they should not start investing any more money into new projects because it is one of the reasons why they don’t have enough cash flow causing the heavy debt problem.