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On the sale of Copper Mountain




There has been a lot of speculation in the last year about the fate of Fortress Investment Group, owners of Intrawest, the parent company of Whistler Blackcomb. Tuesday's announcement of the sale of Copper Mountain, one of Intrawest's suite of mountain resorts, is likely to add fuel to that speculation.

A year ago Fortress was scrambling to refinance the debt it took on with the purchase of Intrawest in 2006. Fortress reportedly paid $1.8 billion for Intrawest, and assumed nearly another $1 billion in debt.

October 2008 wasn't a great time to try and refinance, particularly a purchase as heavily leveraged as Intrawest. That refinancing deal came due at the end of last month, but the loan was extended with little fanfare.

It will come due again, but any suggestion that will mean Fortress struggles for another 11 th hour deal is pure speculation. We tend to forget the scale of Fortress and what it can do in the financial markets. In Whistler, Whistler Blackcomb is the biggest game in town, but in the Fortress galaxy it's just another star.

Intrawest is one of 10 companies in Fortress's $2.5 billion Fund IV account. Other companies in Fund IV include Spectrum, RailAmerica Inc. and Florida East Coast Rail. Apparently the whole Fund IV account is not performing well. According to Bloomberg, Fortress told investors in August the account was worth 25 per cent less than what it paid to acquire the companies.

Intrawest is the worst performing of the 10 companies in the fund. In August, according to a letter from Fortress to investors, obtained by Bloomberg, Intrawest was valued at $721 million.

How many other accounts Fortress has is difficult to determine, as only part of the company is public. But assets managed by Fortress at the end of its third quarter, reported Nov. 6, were $32 billion. That's down from $34.3 billion a year earlier.

However, assets, revenues and share prices may be less important to the handful of key players who control Fortress than management fees, incentive income and expense reimbursements. That's where the Fortress founders keep making money, regardless of how individual companies are performing.

Moreover, after a brutal 2008, Fortress is getting healthier. Reporting on Fortress's third quarter results earlier this month the Wall Street Journal said: "Fortress - which was one of the most-beaten down publicly traded private-investment firms - is now relatively healthy in its hedge fund and private-equity funds. The company doesn't have a lot of debt coming due short term in the private equity funds and many of its hedge funds have returned to their high-water marks."

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