Caroline Bay position paper
Government urged to renegotiate Caroline Bay
Morgan’s Point developer Craig Christensen has urged the Government to return to the table to hash out a solution to the failed Caroline Bay project and has named an investor willing to lend $250 million to make it happen.
Mr Christensen told The Royal Gazette he was “extending an olive branch” to the country’s leaders in the hope they would allow the developers to take back on the project, using a loan from Starwood Capital, a private-equity group in the United States.
“I just feel I can no longer idly stand by,” he said. “As we are sitting here doing nothing, the country needs this money desperately and we need to get back to the table. We can’t have a solution unless we get two parties talking.”
But the Ministry of Finance dismissed the idea, claiming the developers had “serious questions” to answer about why they retained the majority of the land at the former Naval Annex in Southampton, while the Government “holds the significant liability”.
Mr Christensen, along with fellow Bermudian businessmen Brian Duperreault and Nelson Hunt, agreed a land-swap deal with the Government in 2012.
They got the former base land at Morgan’s Point on which to build a $2 billion luxury resort and the Government got the pristine 37-acre Southlands estate in Warwick, enabling it to become a public park.
However, the resort scheme — which was to include hotels, residential units and a marina — was beset with financial problems and the plans were gradually scaled back over the years.
In 2016, the former One Bermuda Alliance government signed a guarantee of $165 million on the project to enable more funding to be raised.
Work on a hotel there stopped in March 2018 after costs overtook financing.
Last September, after the developers defaulted on loan payments for the project, the Government stepped in and acquired the interests of the loans, raising the country’s debt ceiling by $250 million in the process.
Mr Christensen, who said he had put $1 million of his own money into Caroline Bay, claimed the Government did not need to take that step because the lenders were willing to wait and knew the developers had a plan to save the project, involving scrapping the hotel and creating a billionaires’ village on the waterfront site.
AIG chief executive Mr Duperreault said the same in April, when he told The Royal Gazette: “We believed that the [lenders] would have waited until the end of the year to do anything because they thought this was going to go through; this was a workable plan.”
Mr Christensen claimed: “The Government took on that debt. They didn’t have to at the time and they paid a $10 million prepayment penalty. A demand [for payment] had been issued, but it wasn’t due and they elected to pay it early.
“I have no idea why that was done.”
He claimed the Government was working on the wrong assumption that taking on the debt would give it security on the whole Morgan’s Point site, which he said was some 182 acres, but it actually secured only 37 acres at Caroline Bay.
“I think Curtis Dickinson is massively embarrassed by this mistake,” Mr Christensen said. “He may have been advised, but [it] was a huge mistake.”
In April, the Government persuaded the Supreme Court to put the assets of George’s Bay Limited — the development company behind Caroline Bay — into the hands of provisional liquidators, locking the developers out of the project.
Mr Dickinson wrote a May 8 opinion piece in The Royal Gazette explaining why proceeding with the developers and their billionaires’ village plan was not in the best interests of Bermuda. He highlighted the need to pay contractors who had worked on the project what they were owed.
The minister wrote: “Contrary to what many believed, the wider landmass at Caroline Bay Limited was not ultimately provided as security for the loans.
“In fact, what we have now discovered is that Caroline Bay is security for loans made by Mr Duperreault and his wife, Mr Christensen, Dog Leg Limited — a company owned by the Duperreault family — and two external lenders.
“Part of the investigation the Government is duty-bound to carry out is to determine why things were structured this way.”
A Ministry of Finance spokeswoman said yesterday: “Reports from the joint provisional liquidators indicate that they are only beginning to understand the causes for the losses at Caroline Bay and why the structure results in the developers presently retaining significant real estate assets while the Bermuda Government holds the significant liability.
“There are serious questions for the developers to answer.”
Mr Christensen said there was also a question to be answered about why Mr Dickinson hired Rose Investment, a company owned by his younger brother, Barclay Simmons, to work on the Caroline Bay project.
The ministry spokeswoman responded: “The Government of Bermuda, through the Ministry of Finance, engaged a team of professional advisers on the Caroline Bay strategy.
“Rose Investment, a local restructuring advisory firm led by Barclay Simmons, is among that team.
“Prior to the engagement of Rose, Mr Simmons’s familial relationship with Minister Dickinson was disclosed in writing and Rose’s engagement was independently approved by the Attorney-General with the full support of the Cabinet.”
The spokeswoman said the minister’s May 8 opinion piece set out why a second deal would not be pursued with the developers.
She said: “He confirmed that in response to formal demands for payment to the Tranche B and C lenders, which were copied to the developers and their attorneys, the Bermuda Government raised $200 million in bank debt to pay sovereign guaranteed obligations.
“Funds raised were also used to pay over $11 million to contractors and 42 Bermudian subcontractors who were left unpaid by the developers. To date, the developers have not repaid the Bermuda Government at all.”
Mr Christensen said the loan from Starwood would enable the developers to pay back the Government and would give the country much needed liquidity at a time when “liquidity in the market is drying up”.
He shared a “risk assessment” he drew up in May, which describes the $250 million from Starwood as “working capital for George’s Bay”, which would be secured by “all the land at Caroline Bay”.
The document states that the public debt would be repaid and Starwood would take over from the Government as the project’s key lender, but would require a government guarantee of $185 million.
Mr Dickinson has stated that since the developers managed to sell only three of a potential 375 plots in the billionaires’ village, “this is hardly the basis upon which we would again risk the funds of the people of Bermuda”.
Mr Christensen’s risk assessment states that the Government’s $200 million loan would be repaid first from proceeds from real estate sales, “thereby reducing the exposure on the guarantee”.
Clarien and Willowbank, with loans totalling $23 million, would be repaid next.
Mr Duperreault and Mr Christensen, jointly owed $68 million, would be last in the queue.
Mr Christensen said: “There has been a fair bit of misunderstanding as to what was proposed. In the best interests of Bermuda, we need to sit down and jointly work out a solution and make the best of a difficult situation.”
The Ministry of Finance spokeswoman said: “It is our intention to pursue the interests of the people of Bermuda to the full extent permissible under the law, and we have assembled a team based on the complexity and size of the liability.
“The people of Bermuda can be assured that we and our team are fully engaged in the execution of that goal.”
Starwood Capital could not be reached for comment.
• To view the Caroline Bay position paper, click on the PDF link under “Related Media
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