HE MADE his fortune through the invention of the nicotine patch, created the European Le Mans motor racing series and launched the luxury St Andrews Bay hotel in Fife.
But even US tycoon Don Panoz is not immune to the credit crunch, as court papers reveal that his upmarket vineyard, golf and housing resort in California has fallen into bankruptcy.
And Panoz's problem is not merely something we can observe with
impunity from Scotland – Bank of Scotland is owed more than $20 million (£10m) after the collapse of the Diablo Grande resort.
HBOS has been named as a major creditor after the development – which currently boasts about 400 homes, but had ambitions to increase that to 1,200 – fell victim to the US housing slump.
The Edinburgh-headquartered bank forked out an extra $1m loan last Thursday to keep the development operating until mid August, according to bankruptcy papers from the Sacramento Court.
Panoz is understood to be worth about $400m. He built the five-star Fife hotel – which two years ago played host to the St Andrews Agreement talks on Northern Ireland – through his St Andrews Bay Development company.
Two years ago he sold it to the Canadian-based Fairmont hotels chain, saying the undisclosed lucrative offer was "too good to refuse". He still owns the Château Élan hotel and resort in Atlanta, Georgia.
But in his latest development he has not been so charmed. The remote Diablo Grande scheme was forced to seek Chapter 11 bankruptcy protection in March after the US housing slump started to hit sales of its luxury homes, which are on the market for up to $2m. Chapter 11 protects businesses from creditors while they restructure to become profitable.
The concept does not exist in the UK, where companies instead go into administration – usually to be broken up to salvage whatever assets are left and pay off creditors.
In the Diablo Grande case, if a sale goes ahead and the company gets back on its feet, HBOS's money could be repaid.
Panoz, the founder and former chairman of the Elan Corporation and an eminent US entrepreneur, has suffered several setbacks in recent years.
Dan Bacci, general manager of Diablo Grande's two golf courses, yesterday said residents on the estate feared their property prices would fall further if the resort was not completed.
Currently, homeowners have to travel eight miles to the nearest shop or petrol station.
Bacci told The Scotsman: "People are worried. The housing market in California started to dip around two years ago and it is perhaps a tiny bit worse here than elsewhere. People want the resort to be finished – so there are the shops and the hotel and so on which were planned when they bought their homes."
He added: "I think this place was maybe a little ahead of its time. It has the potential to be a wonderful place eventually, but it was maybe too early."
In 2004, Fountainhead Holdings, the parent company of the St Andrews Bay Development, sold off a 50 per cent stake in the St Andrews Bay Hotel to US firm Laup Holdings. Accounts for the year to December 2004 showed debts of £8.6m and losses of more than £5m.
Diablo Grande has been blighted by a series of problems over the decade since its inception, including with the quality of its water supply.
The resort, which has two championship golf courses, as well as a vineyard, was also granted permission from the courts to be auctioned off next month if an offer from a specialist condominium company is not accepted.
Bryan Johnston, analyst at Edinburgh stockbroker Bell Lawrie White, said: "It is not uncommon in times of a recession that banks end up owning a lot of property because of debt problems. In the last recession, HBOS ended up owning the Balmoral Hotel, before selling it to Rocco Forte.
"Developers like Panoz have a double whammy of getting hit with servicing costs at a time when their sales are dropping off because their prospective customers don't have any money."
Johnston added that the current economic climate could continue to affect luxury developments in the US for some time.
He said: "The atmosphere on Wall Street is ghastly. These are the people who would have had money to spend on these kinds of developments – but now that core market is drying up as people are getting more worried.
"If you look at the history of golf courses and so on, it is littered with developments which go bust. They are very cost-intensive and there's a lot of competition."
Plans to expand Diablo Grande included an extra 2,300 homes on the land, plus a hotel, conference centre and shops – which could still happen if a rumoured $25m sale to Housing Source Partners goes ahead.
The development was forced to shut the golf course for a short period earlier this year amid financial difficulties.
HBOS, which was also the banker for the St Andrews Bay development, refused to comment on its involvement with Diablo Grange.
A spokeswoman for the Diablo Grande resort declined to comment other than to confirm that the golf course was now open and operating.
A spokesman for Panoz himself said the entrepreneur was currently on a cruise in the Ukraine and was unable to comment on the situation.
The full article contains 898 words and appears in The Scotsman newspaper.
