Caroline Bay: why it was not the deal for Bermuda

  • Curtis Dickinson is the Minister of Finance and the MP for Warwick North East (Constituency 25)

    Curtis Dickinson is the Minister of Finance and the MP for Warwick North East (Constituency 25)

  • Development plan: Brian Duperreault

    Development plan: Brian Duperreault

  • Development plan: Tom Lawrence

    Development plan: Tom Lawrence

  • White elephant: unfinished residential units at the Caroline Bay complex at Morgan’s Point (Photograph by Blaire Simmons)

    White elephant: unfinished residential units at the Caroline Bay complex at Morgan’s Point (Photograph by Blaire Simmons)


The recent public comments made by Brian Duperreault, his consultant, Tom Lawrence, and his co-developer, Craig Christensen, are designed to secure the agreement of the Bermuda Government to enter into a deal that is in the developers’ best interests, not Bermuda’s.

In this article, I will set out the facts and circumstances surrounding why the Government has decided not to accept the proposal put forward by the developers. I intend to address the following:

• Why we determined that proceeding with them was not in the best interests of Bermuda

• The people directly affected by the vast sums that remained unpaid on the project

• What the developers have requested of the Bermuda Government

• Steps we have taken to address and resolve the problems

• How we see the project moving forward

Why we determined that this was not in the best interests of Bermuda

This was a project that should not have been supported by the Bermuda Government, entered into on the advice of Mr Duperreault. All of the points now raised by the developers relating to condo sales and hotel developments in opposition to the project were known in 2016 when they encouraged the former government to sign the deal.

From a lender’s perspective, the project was launched solely on the strength of the Bermuda Government’s $165 million guarantee and not on its own merits. Further, as the developers’ opinion-editorials point out, the project loans and guarantees were restricted to George’s Bay Limited.

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.

Certainly, had the project performed well, Mr Duperreault and partners stood to gain financially. Now that it has collapsed and has required the Bermuda Government to step in, their interests are said to be ring-fenced in a separate entity. Some may call that “good business”, but as a government, we have to ask if this is what constitutes the basis for a future partnership.

As is widely known today, construction was suspended in February 2018 when Mr Duperreault and his co-developers failed to garner enough funds from sales to complete the construction phase of the project. Lenders, contractors, subcontractors and suppliers were all left unpaid. The Bermuda Government allowed Mr Duperreault to seek refinancing and entered into a standstill agreement. We wanted to give him and his partners time, and to support an important project whose downfall would affect us all.

On June 15, 2019 — more than one year later — the developers announced that they had secured new financing. In a press statement provided to The Royal Gazette their spokesman said: “Caroline Bay Limited, its board of directors and board chairman Brian Duperreault announced today that it has entered into an agreement which will provide the financing to continue construction of the Caroline Bay development. Since the outset of this project, our commitment to and confidence in Caroline Bay has been steadfast. We appreciate the patience that our construction partners have shown and are grateful for the ongoing co-operation and assistance of Government. We look forward to continuing the work at Caroline Bay.”

The Royal Gazette added: “The developer declined to elaborate on the source or amount of the financing.”

We commenced a detailed review of his proposed financing, contained in a term sheet signed by Mr Duperreault and Mr Lawrence. We found the terms surprising:

• The new funding would be in priority to the loans guaranteed by the Government. This means if the project failed again, their new lenders’ claims would be paid first, and if anything was left over, then ours

• $25 million would be paid to other Bermuda lenders in the project who had security over parcels of land at Caroline Bay Ltd that were not guaranteed by the Bermuda Government. This means that our risk would remain, but theirs would be paid off

• $40 million in self-described bridge financing would be paid to Mr Duperreault over the next ten months, while the Bermuda Government’s risks remained in place

• The new proposed lender and Mr Duperreault’s new co-developer, Mr Lawrence, would each be paid $17.5 million in closing fees, as the Bermuda Government’s risks remained in place

• Ownership in the project would be split 33.33 per cent to entities controlled by the Duperreaults, 33.33 per cent to entities controlled by Mr Lawrence and 33.33 per cent to his new lender

• To be clear, the Bermuda Government $165 million guarantee, and therefore risk in the project, would remain in place while all the above took place.

At the time, I suggested caution, advising that a term sheet is not a deal. That was a polite way of indicating that the proposals as drafted should not be seen as a way forward. We could never agree to hold the majority of the risk of the project, pay off others whose risk was not guaranteed by the Government and pay Mr Duperreault the bulk of his investment, while handing ownership over to him, his new partner and his new lender.

This was in addition to our assessment of the merits of his new plan for his team to exclusively offer the “single-family office billionaire village”. His second deal for financing was not dissimilar to the first, and key points remained.

He and his partners would be the majority owners of the project. Fees in the new financing proposal would include $5 million for the actual lenders and a further $12.5 million for an arrangement fee to be paid to Mr Lawrence. The lenders already involved in the project at Caroline Bay would be paid $25 million, a further schedule for repayment to Mr Duperreault of $40 million — and all based on the Bermuda Government leaving its $165 million guarantee in place.

There were a few other crucial items that caused me concern:

• Not once during our six-month effort to pay the creditors Mr Duperreault left unpaid did he communicate with me suggesting he would repay the debts the Government was now left to pay

• He instead went about promoting his new deal to thought leaders locally. Of note, while some may indeed support his ideas, we have seen no evidence that those who are able wish to invest in the deal

• Of his planned 375 sales, he disclosed a pipeline of three. This is hardly the basis upon which we would again risk the funds of the people of Bermuda

• Finally, on any analysis, if the deal was actually as good as he suggests, it wouldn’t need a government guarantee — he would offer such a proposal to professional investors. I have asked myself many times: would he accept such a deal on behalf of his shareholders?

Each of the proposed deals, from the one signed in 2016 and each new proposal that has followed — including a suggestion that they would purchase the debt held at present by the Government of Bermuda — is based solely on the Government holding the risk in the form of an extension of the $165 million guarantee if the deal fails.

We are all aware and now know this risk is real. I can see no reason to risk the people of Bermuda’s money further in real estate proposals where, as before, the risk of failure rests on the people of Bermuda.

The people directly affected by the vast sums that remained unpaid on the project

Here are the subcontractors who for 12 months or more remained unpaid on the project by Mr Duperreault when the Government got involved. Each company represents a business staffed with entrepreneurs and employees, and their respective families who rely on them:

ACS Ltd, Anchor Marine and Maintenance Co Ltd, Architectural Painting Contracting, Atlantic Water Development Limited, BAC Group of Companies, BAC Universal Electric, Bermuda Air Conditioning Ltd, Bermuda Elevator Systems Ltd, Bermuda Gas and Utility Company Limited, Bermuda Interiors Ltd, BEST, Brown and Company Ltd, BS&R Group, Colortone Coating&Finishes, Correia Construction Company Ltd, Dale Fox General Contracting, East End Asphalt Company Ltd, Eminence Contractors Ltd, Gray&Co Ltd, Greymane Contracting, H&H Plumbing&Mechanical, Horsfield Landscape&Design Ltd, Horti Tech Holding Company Ltd, Innovative Design&Development Ltd, Intelligent Excavating&Landscaping Ltd, Island Glass&Metal Company, Kaissa Limited, M3 Contracting Ltd/M&M Pools Ltd, Pimental’s Crane Service, Preconco Ltd, Q-Ship Enterprises Ltd, Redeemed Construction&Maintenance Ltd, RJ Cooper Excavating&Landscaping Ltd, SAL Trading Ltd, Seabridge International Inc, Smith Hauling&Excavating Ltd, Sousa’s Landscape Management Company Ltd, Stafford Flooring, Stoltzfus Feed&Supply Inc, TurnKey Services Ltd.

The lenders who were involved included Arch Capital Group and Axis Capital Holdings at the Tranche C Level and CTL Lending at the Tranche B Level. They, too, remained unpaid until we got involved.

What the developers have now requested of the Bermuda Government

George’s Bay Ltd has the shell of the hotel assets, the marina and the residences. Caroline Bay Ltd has the mass of undeveloped land. What Mr Duperreault and Mr Lawrence have requested is that the Government increase its guarantee to $185 million and allow new funds to be borrowed on top of that which will have the first claim on all the assets.

We would pay Mr Lawrence a fee of $12.5 million for arranging $250 million in new debt, but only $75 million of that would be drawn down at any given time. We would then provide the project with exclusive rights to the single-family office concept, from which they would conduct sales of units and plots of land — enacting Legislation to empower Mr Duperreault and Mr Lawrence to solely sell SFO rights internationally, while we take on the risk if the project does not work.

It would be imprudent in the normal course of things, but even more so where the project Mr Duperreault launched has already clearly failed. The public-relations campaign the developers have started attacks the very project the developers launched and other hospitality projects as well, and says if you don’t do this deal with us, then you won’t do a deal at all.

Steps we have taken to address and resolve the problems

On June 21, 2019, we were copied in on a letter to Mr Duperreault and the developers from the Tranche C lenders requesting that they be repaid, as their loans had been in default for some time. That letter was followed by another one from the Tranche B lenders on August 19, 2019 demanding that they, too, be paid, as the borrowers were in default.

The developers agree they received these letters; however, for six months Mr Duperreault did not contact the Government to address these outstanding debts. In response to those letters, we did the following:

• Raised $200 million in new government debt to have a pool of funds to gain control of the impending spiral of threatened litigation and to control our exposure. While that decision has been criticised by Mr Duperreault and Mr Lawrence, it has been viewed favourably by Standard&Poor’s, which, in affirming our credit rating, recognised the importance of sovereigns honouring their commitments. It is also important to note that the massive debt left by the developers was incurring interest at a penalty rate, far greater than the rate they criticised us for paying today

• Bought the Tranche B and Tranche C loans, fulfilling our obligations under the respective guarantees to the Tranche B and Tranche C lenders — again, commented on favourably by Standard&Poor’s in our previous credit rating

• Bought the claims from the general contractor, dck Bermuda Ltd, and have worked on a remediation plan with them to protect the physical assets and buildings left exposed by Mr Duperreault and his team

• Paid 42 of 46 subcontractors. Those who were not up to date with their obligations to the Government — and many were because they were left exposed by Mr Duperreault and his team — have been paid and have now paid their obligations to the Government or have entered into plans for payment. In our view, they had done the work and were entitled to be paid for the work they had done. The remaining unpaid subcontractors are making their arrangements with the Government and should be paid shortly

• Worked with our advisers to ensure the people of Bermuda get back as much value as has been put into this project. This requires the kind of careful examination that should have been done before the deal was agreed in the first place

The strength of the advocacy from Mr Duperreault and Mr Lawrence against Bermuda hotel and hospitality projects is unfortunate in circumstances where Mr Duperreault led us into the present failed deal. The fact is that any hotel development’s value is driven by demand. Tourism is not the only source of Bermudian demand. Bermuda hotel occupancy is normally in the 63 per cent range. It is driven by a collection of tourists, business travellers, friends-and-family visitors and local residents.

Driving demand is how value is created. We have an excellent example in the Hamilton Princess&Beach Club, where the Green family have invested in the product to create something all of Bermuda is proud of. The Loren is a fresh take on Bermuda hotel architecture and brings a product that is modern and new. The St Regis will be equally distinct, beautiful and a welcome addition to hotel jobs in the eastern end of the island.

Creating demand is part of the competitive advantage Bermuda wishes to further establish. We certainly enjoyed a measurable uptick by avoiding the Zika virus. If we are able to use our natural borders to protect against further Covid-19 exposure while gaining control of it internally, that, too, becomes a real factor in creating demand. The audience of the entire East Coast would arguably find that compelling.

We have also been open to the concept of a single-family office and said so in the latest Budget Statement. It would require specific legislation we are considering and would indeed bring much needed consumption by those families if they decided to locate their offices here.

That said, restricting them to a single location makes little sense, and outsourcing the value of such a programme to Mr Duperreault and Mr Lawrence is extremely risky based on the track record of the existing project.

How we see the project moving forward

On March 26, 2020, joint provisional liquidators were appointed over George’s Bay Ltd. They have commenced an examination of what took place inside the project and to determine what assets are available to satisfy the claims the Bermuda Government has amassed.

How was so much money spent, but so little achieved? Once they complete that exercise, we will have a better sense of next steps to take.

We have also engaged Alvarez&Marsal, which is a professional restructuring company with global experience. It is examining the information we have and will provide us with guidance on how best to achieve a financial result for the people of Bermuda, based on the position we find ourselves in.

We invite the public to visit its website and to learn more about the engagements it as a firm has been involved in. Several are directly relevant, and we explored its experience with half-built hotels and the outcomes it was able to achieve for previous clients.

With respect to others who may be involved in due course, there are providers of capital looking for opportunities, led by investors who would make excellent partners. Our pension funds have invested in many of them previously.

The Carlyle Group, Apollo Global Management, The Blackstone Group and Brookfield Asset Management are just a few examples of top-tier firms, each with billions in assets under management, with whom we have invested in the past. Firms such as these have track records of success and capital they could commit alongside us. They have experienced teams who are focused on obtaining a multiple of the capital invested. They are professional, full-time real estate investors.

The previous government wanted to create economic stimulus, which was a laudable goal. The deal it struck with Mr Duperreault and his team was clearly one where if things worked, they would get the benefit and if they didn’t, we would hold the loss.

The people of Bermuda cannot afford the risk of entering into the proposed arrangement with Mr Duperreault and his team. Asking us to do so again suggests that we did not heed the words of Einstein, cited by Mr Lawrence.

Curtis Dickinson is the Minister of Finance and the MP for Warwick North East (Constituency 25)

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Published May 8, 2020 at 8:00 am (Updated May 8, 2020 at 8:05 am)

Caroline Bay: why it was not the deal for Bermuda

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