Caroline Bay faces ‘restructuring’
The stalled Caroline Bay resort development is to go back to the drawing board with “expert restructuring advisers”, the finance minister said yesterday.
Curtis Dickinson added the project would be assessed by Alvarez and Marsal, a New York firm with “significant experience” in reviving large projects.
Mr Dickinson said the company's staff were “experts in the real estate space and restructuring space”.
He was speaking after the Government's announcement on Thursday that it would take legal action in a bid to have provisional liquidators appointed for the troubled development.
Mr Dickinson said the provisional liquidators, from professional services firm EY, were also experienced in hospitality properties, including the Newstead and Tucker's Point resorts.
Mr Dickinson added the next step was to shore up the partly completed buildings at the West End development to protect them from deterioration.
He said he was “disappointed that the developers failed, in what was the largest Bermuda Government-backed hospitality project”.
He added: “This could have been and should have been avoided.”
Mr Dickinson said the future of the project could include “design construction plans” to allow the Government to “complete the buildings and have them in working order”.
He declined to speculate on whether the development would remain a resort or get changed to housing.
The original developers included Brian Duperreault, the chief executive of insurance giant AIG and one of the island's most prominent business figures.
Mr Dickinson also declined to comment on whether the developers had tried to bail Caroline Bay out with their own funds.
He said: “How much money they've put in, and why they are unable to fund additional amounts personally, is a question they are in the best position to answer.”
Mr Duperreault did not respond to a request for comment yesterday.
The hotel and luxury home complex would have transformed the brownfield site left at the old US Naval Annex at Morgan's Point.
The deal was sweetened with a $165 million government guarantee agreed under the previous One Bermuda Alliance administration.
The guarantee had to be paid to lenders last year after the development hit finance problems.
Mr Dickinson said extra funding was being drawn from the Government's $200 million credit line with Butterfield Bank and HSBC Bermuda, set up last year to pay off lenders.
He added further borrowing would have to be done through “a new special purpose vehicle, backed by the assets of the project itself” — leaving the option of seeking further investors — “if deemed appropriate”.
Mr Dickinson said Caroline Bay's backers had made several proposals in an attempt to salvage the project over the two years since they said they were unable to meet their debts.
He added: “Without exception, each proposal would have put the Bermuda Government in a far worse position than it is in today.”
Mr Dickinson said new borrowing based on “speculative plans” would have likely led to further default, with the new lender having first call on the assets at present claimed by the Government.
Mr Dickinson said that would “leave the people of Bermuda with nothing”.
He added that all the proposals were also based on Government continuation of its $165 million guarantee — or increasing it to $185 million.
Mr Dickinson said: “They are also based on the payment of transaction fees to the developers, or parties related to them, in the range of $12.5 to $17.5 million, and repayment of loans, or interest payments on loans, to other lenders who were not part of the Bermuda government guarantee.”
He added one proposal would have transferred the debt held by the Government to a new investor, who would have retained a priority claim on the project's assets.
Mr Dickinson said the Government's actions on Thursday were “an effort to mitigate the worst-case outcome” of the Government losing its money.
About $11 million was paid in December and January to subcontractors at the site who had now “by and large been paid”.
Mr Dickinson added: “The buildings that have been partially constructed, we need to finish them first.
“Our chances of recovery of all of our money are reduced, inasmuch as there is incomplete construction.”