The Timeshare Beat
August 6, 2001
The recent events surrounding the involuntary bankruptcy of King of Prussia, PA-based Epic Resorts, LLC have brought
to the forefront of the industry's attention once again the perception of the unreliability of timeshare companies
and the shady reputation of the industry as a whole. In the view of most of Epic's employees and vendors, the perception
has become painful fact even though not all regard the events as necessarily being Epic's fault.
| Comments from readers: "I had been the manager in Epic's Melbourne call center and was told on the Thursday the week before they went under that I had been promoted to take over the Las Vegas center if I could head out ASAP. ... I headed to Vegas by car on three days notice. I got a call in a parking lot in Okla. City that no checks would be available when I arrived." "It's just sad that this happens with no warning. People walk around like they've just been hit with a baseball bat... it happened with Glen Ivy in 1992. ...They'll never get their reserves. They'll never get those last paychecks. The worst part is how they let them work those last days making more money for the company knowing they won't get paid." |
With approximately $2.4 million in payroll due on July 20, according to our sources, the company notified its thousands of staff and its vendors by fax, memo and phone calls on that day that paychecks would be delayed. Some locations were told the company was suing its primary lender (assumed to be Prudential Securities) and that was the reason for the delay. Others were told merely that they were experiencing a temporary money crunch. All were asked to be patient and told that the company would pay them as soon as possible.
Epic told everyone that they were attempting to get the money together. They said their number one priority was to get everyone paid. They told both employees and The Timeshare Beat that they were as surprised by the circumstances as everyone else.
What no one was told was the whole truth: that certain of Epic's bondholders had forced them into Chapter 7 bankruptcy on July 19th because the company had failed to make an interest payment that was due on the 15th of June. And that they must have known they were in serious trouble long before the real crunch came but continued to operate as though everything were okay.
The Timeshare Beat broke the news about the bankruptcy on July 25th, and it is likely that if we had not done so Epic's employees and vendors would still not know the actuall details and how it would affect their lives and the money owed to them..
It was not until June 29th, 2001 that Epic released a statement admitting that they had not made the required interest payment on the bonds, although they claimed they had the money to do so. They also admitted that the money was not in a special escrow account as required by the terms of the notes.
Those admissions raise questions which have not been answered: If they had the money to make the payment, why didn't they do so? Why wasn't the money in an escrow account, and if it wasn't there where was it? And where is it now?
In at least one telemarketing location, employees were told as early as July 13th that the center was downsizing, according to several sources who worked there. They were assured that some employees would remain on the job and that everyone would be paid.
Instead, the entire center was closed down on the 20th, along with the rest of the company's sales locations, and to date it seems that they have still not received their checks.
So it would appear that Epic knew they were in serious hot water at least as early as June. The company was pursuing a credit line with Credit Suisse, and possibly other lenders, but time was running out and they must have known their days were numbered..
Perhaps everyone else should have seen it coming, too, but Epic-- according to many of their vendors-- has long been famous for slow paying those accounts. According to reports from Epic employees, the company was also sometimes slow paying the electric or phone bills on time in some locations, and there have been other money-related issues.
On July 9, for instance, The Timeshare Beat received a tip from a reader who discovered that the company's Web site was down and asked that we investigate. When we visited their website a notice on it said, "This website is temporarily disconnected. If you are the owner of this site, please contact our Accounting Dept. by clicking here. Thank you." That issue was resolved within a few days, but The Beat has been told by a very reliable source that this, too, was a money issue: the hosting service had not been paid.
Everyone pretty much seems to have thought the late payment on the bonds was just more of the same. After all, Epic had a 30-day grace period on that issue. However the 30 days passed, and the payment was not made. To date, hardly any of Epic's employees have been paid either, and none of the vendors who have contacted us have seen any money either.
Mr. Ken Knight, an Epic Corporate executive, in an interview with 'The Beat' acknowledged that they were aware that not paying their employees on time would cause some hardships. What Mr. Knight apparently wasn't aware of was the magnitude and seriousness of the problem; in one location for example, on July 21st a collection was taken up (by and from Epic employees) for a single mother who was left with less than $5 to her name and children to feed.
Currently most former Epic employees are telling us that they believe that they will never see the money owed and although a few are still holding out hope the sales staffs also believe that they will never see their personal reserve funds that Epic allegedly is holding (up to $1,500.00 per agent) in what is supposed to be a reserve account for these agents.
As of this writing their corporate Web site, like many others, contains no mention of who the principals of the corporation are, how they can be reached or how the company is structured. (In its previous incarnation, the original Web site carried much of that information.) In addition, it has not been updated to include information about the parent company's financial situation and still contains information on current vacation specials plus a form allowing people to give their credit card information to purchase those promotions. The Timeshare Beat filled out one of the forms, using real names and other information, and it was accepted. However, no one ever responded to that form; whether because there was no one there to respond or because it came from The Beat is not known.
In a faxed and emailed missive sent to Street Talk on August 5, Epic said, "For the record, all resorts and EPIC Vacation Club, have remained continuously open and fully staffed for guests to enjoy their vacation experiences. Interested persons who want to avoid the false and inflamatory statements of your publication should access the EPIC Resorts web site at www.epicresorts.com. Reservations are being taken as usual at 1-877-602-EPIC."
It should be noted that Epic Vacation Club is a separate entity from the two LLCs which were named in the bankruptcy filing and is not therefore directly involved with that unpleasantness.
Epic is now blaming their situation on Prudential Securities, which reportedly cut off their funding unilaterally, leaving Epic unable to meet its day-to-day financial obligations-- including the payment of the interest on the bonds. According to a recent article in The Desert Sun, company executive Ken Knight said Prudential "wanted to get out of timeshare receivables".
Prudential was unavailable for comment over the weekend, and has had no comment on the affair at all since the news of Epic's financial woes first broke.
In addition to Epic's financial difficulties, CEO Thomas Flatley and his now apparently inactive American Financial Mortgage Corp. have been on the hook for millions of dollars in damages awarded to Pioneer Commercial Funding at the end of last year as the result of a lawsuit that included accusations of check kiting against Flatley. The court's judgement against American Financial Mortgage Corp. and Thomas F. Flatley was as follows:
Most recently, The Beat has discovered that a lawsuit was filed on July 30, 2001 in the US District Court for the Eastern District of Pennsylvania against Epic Westpark Resort, LLC and Finova Capital Corp. by two individuals who appear to be a married couple. The attorney of record for these people is David A Scholl, of the Law Offices of Eugene J Malady, LLC. The nature of the suit is Truth in Lending (371); Statute: 15:1601. This statute has to do with the informed use of credit and/or terms of personal property leases, and may well be a "garden variety" lawsuit of the type that most large companies are hit with from time to time. There were no further details available at press time.
Finova, mentioned as a defendant in that lawsuit, has apparently been handling a great deal of paper for Epic for certain of its resorts yet it is uncertain at this time just how deep Finova's financial involvement is or how Epic's bankruptcy will affect them.
Also not yet clear is whether or not Epic will attempt to change the Chapter 7 filing to a Chapter 11 reorganization filing, which would allow them to continue operating under the protection of the court while they attempt to straighten out their troubles.
Under Chapter 7, the holdings of Epic Resorts, LLC and Epic Capital Corp. would be liquidated to pay off creditors. A bankruptcy attorney contacted by The Timeshare Beat reiterated that the resorts themselves would be unlikely to be directly affected, in the sense that they exist as independent entities, separate from the parent company, with the common areas and resort units owned by individuals and/or the HOAs on behalf of points owners. According to this attorney, if Epic goes under the resort association may have to retain new management and some sort of accommodation would have to be worked out regarding the points system, but overall the owners/members are likely to see little interruption in their enjoyment of the resorts.
A Little History
Epic Resorts, LLC is a Delaware limited liability company formed in June 1998 to merge with the ownership of
the London Bridge Resort and the Daytona Beach Regency and their vacation ownership acquisition and development
businesses. London Bridge Resort was acquired in 1986 by London Bridge Resort, Inc., a Delaware corporation wholly
owned by Thomas F. Flatley, the company's President. In April 1996, the Daytona Beach Regency Resort was acquired
by Daytona Beach Regency, Ltd., a limited partnership.
In connection with the private placement of $130 million aggregate principal amount of the company's Senior Secured
Redeemable Notes due 2005, in July 1998 Epic Resorts, LLC and certain of its subsidiaries were merged into limited
liability companies. Mr. Flatley simultaneously contributed his membership interests in certain of those subsidiaries
to the company. In connection with the issuance of the Notes, the company acquired four new resorts:
At that time the company also purchased the limited partnership interests in Daytona Beach Regency, Ltd, in Florida.
The total price paid for these properties was around $63.2 million.
The company also owns inventory at Paradise Pointe Resort in Branson, MO and a resort in Los Cabos, Mexico.
Companies currently connected to Epic Resorts, LLC include:
Epic Vacation Club belongs to the Homeowner's Association that has been established for each resort. Currently, there are six (6) separate homeowners associations. The Association is a not-for-profit corporation and operates primarily to collect the assessments from its members and remit to the developer of the property the Association's pro-rata share of direct and allocated expenditures including real estate taxes, property insurance, grounds maintenance, utility costs and housekeeping services. Typically, the Association reimburses the developer or property manager for the Association's pro-rata share of such expenditures.
Epic generates cash from operations through the sale and financing of Vacation Points, resort operations, transient rental of resort accommodations and management fees. With respect to the sale of Vacation Points, the company generated cash from operations from customer downpayments and the sale of notes receivable through the warehouse facility in amounts typically equal to 88% of the related customer notes and mortgages receivable. They generated additional cash flow from its Vacation Interests receivable portfolio through receipt of the spread between the yield on such portfolio and the cost of the Receivables Facility upon completion of securitizations of such receivables.
It is possible that Epic's meltdown started with the FTC's "Operation Travel Unravel" in August, 2000, when the FTC filed three complaints in federal District Court seeking to permanently enjoin certain alleged law violations and award consumer redress. The complaints were brought against Leisure Time Marketing, Inc./Discovery Rental, Inc. of Cocoa Beach, Florida; Med Resorts International, Inc. of Clearwater, Florida; and Epic Resorts, Inc. of King of Prussia, Pennsylvania. In each case, the Commission sought a temporary restraining order with asset freeze and appointment of a receiver to ensure that no additional consumers were defrauded while the permanent injunctions are being sought.
In ensuing articles, The Timeshare Beat will be exploring in more depth the American Financial Mortgage/Pioneer debacle, the FTC complaints against the company and other issues relating to Epic Resorts and its principals.
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