Personal Debts Cloud Outlook Of Golf Rescue

By ANTHONY PALAZZO
Staff Reporter

National Golf Properties Inc. Chairman David Price, now in the midst of a struggle to save his golf empire, borrowed heavily against his paper fortune in the mid to late '90s, according to filings with the Securities and Exchange Commission.

Price used shares in the Santa Monica Real Estate Investment Trust he founded, along with limited partnership units in an affiliate, as collateral on loans that totaled $62 million when last reported to the SEC. Meanwhile, National Golf shares are worth only one-fifth of what they were less than a year ago. The loans were made by Bank of America and American Golf Corp., the Price-controlled operator of most of National Golf's golf courses.

While the value of the collateral has fallen, National Golf in early February discontinued $1.84 per share in annual dividend payments, cutting off $653,000 in yearly income to Price income Price could have used to make payments on those debts.

"I think he's in deep trouble and he's trying to preserve himself," said Dan Boyle, a partner with Schwerin Boyle Capital Management, holder of 4 percent of National Golf shares, about 500,000 shares.

Calls placed to David Price through National Golf Properties and his privately owned American Golf Corp. were not returned.

A plan to merge the three affiliates, announced on Feb. 14, likely would wipe out at least some of the loan balances. Other National Golf shareholders, who haven't seen details of the merger plan either, are worried that they will end up footing the bill for Price's personal loans and loan guarantees.

"Based upon the limited information provided to date (we) have serious doubts about the benefits of this transaction to (National Golf) or anyone else other than Mr. Price," said Los Angeles investor Carl B. Tash, in a statement filed with the Securities and Exchange Commission on Feb. 21. His Cliffwood Partners LLC has built a 9 percent stake in National Golf since January.

It is not known what Price is worth today. In 1997, Forbes magazine estimated his net worth to be $570 million enough to be on Forbes' list of 400 richest Americans. But a 1998 divorce from his wife, Dallas, appears to have cut his holdings in half, and a slump in the golf business has eroded his worth further. (Most of the couple's ownership interests in National Golf, American Golf and related entities were split 50-50.)

"This is a human-interest story as well as an economic one," said Boyle. "These guys get rich and do it using leverage and a lot of risk. They get more and they want more and they don't know where to stop. At some point a sensible person would be downscaling their risk."



Planned conversions

According to regulatory filings, Price owns 354,938 National Golf shares. He also plans to convert into National Golf shares 1.3 million limited partnership units in National Golf Operating Partnership LP, an ownership vehicle for golf courses jointly owned by the two entities.

The NGOP units are convertible on a one-for-one basis, under some restrictions, into National Golf common shares. With the planned conversions, Price will have an ownership interest in National Golf of 11.7 percent, or 1.7 million shares. At a recent price of $5.90 a share, that stake in National Golf is worth about $10 million. (He owns another 2.3 million NGOP units that can't immediately be converted.)

Dallas Price plans a similar conversion that will also leave her with an 11.7 percent interest in National Golf. She also would retain 1.7 million NGOP units.

David Price also controls American Golf, National Golf's major tenant and the operator of most of its owned courses. American Golf is heavily indebted and unable to pay its bills; its overall value, if any, is up to speculation.

Both David and Dallas Price, however, are obligated to pay back loans that could outweigh the value of their golf-course interests. The first set of loans, which totaled $33.5 million at the end of 1998, were secured with at least some of the Prices' National Golf shares and NGOP units.

These loans, dating back to 1996, include a $15 million term loan and a $5 million revolving credit line with Bank of America. As of December 1998, the outstanding balance on these two loans totaled $11 million. The Prices also used stock and NGOP units to guarantee up to $4 million of a $20 million loan to Mountaingate Land LP, Price's vehicle for interests in the Mountaingate Country Club overlooking UCLA. As of late 1998, the Mountaingate loan balance was $19 million. Finally, a limited partnership named Supermarine of Santa Monica owed $3.5 million as of late 1998 on a loan guaranteed by David Price's personal trust fund.

It's unclear what the current balance is on any of these loans. Boyle has been frustrated by a lack of current information in the National Golf's SEC filings.

National Golf interim Chief Executive Charles Paul, head of the board's independent committee, did not return calls seeking comment.

As of March 2000, according to recent filings by the Prices, 639,601 NGOP units and 673 National Golf shares were pledged as collateral to Bank of America. At current prices, the value of those interests would total about $3.8 million. Though it's not clear how much the Prices still owe, a clause in the loan agreement allows Bank of America to demand more partnership units as collateral if its value decreases as a percentage of the outstanding loan balance.

Bank of America officials did not return calls for comment.



Investor worried

The lack of details about the proposed three-way merger, along with the loans and Price's conflicts of interests involving the various entities, has Boyle worried. More troubling to him than the bank loans, however, is a separate, $29 million loan made to the Prices by American Golf in 1996. American Golf got the money to make the loans by issuing $41.5 million in notes to institutional investors. The notes, along with a $40 million credit facility that was later increased to $60 million, were "collateralized by the issued and outstanding stock of an affiliate," according to a filing.

Boyle believes that affiliate is National Golf. In salvaging American Golf via a merger, he believes the obligations incurred by American Golf in lending to the Prices will be transferred to him and to other National Golf shareholders.

"I believe (Price) did pledge his shares against AGC debt, which would wipe him out if they don't do this deal," Boyle said. "His ownership interest in National Golf is in jeopardy, which is his business. But where it comes to American Golf, if there are personal debt guarantees that are going to release him from obligations that then come to National Golf shareholders, that's an enormous conflict of interest."

With the limited information available, Boyle like Tash now feels National Golf shareholders would be better off allowing Price-controlled American Golf to fail, and find other operators for its properties.

"(We) fail to see how it would be in the best interests of (National Golf) to merge with, and give substantial control to the stockholders of, the very entity that is largely responsible for (National Golf's) current financial difficulties," Tash said in his filing.

Meantime, vulture investors are eager to get a look at the terms of an equity investment in the merged company that is part of the reorganization plan.

Mike Matkins, senior partner in Allen Matkins Leck Gamble & Mallory LLP, said he had "a couple of clients" waiting to see a term sheet being prepared by National Golf's restructuring adviser, Lazard Freres. There are perhaps six or seven parties waiting to talk to Lazard, Matkins said.

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