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Gencom asks Government for multimillion-dollar guarantee

Fairmont Southampton (Photograph by Akil Simmons)

The Government is considering a request to provide a multimillion-dollar guarantee in support of the stalled redevelopment of the Fairmont Southampton.

The request is the second after hotel owners Gencom last year failed to meet a number of conditions contained in a letter of intent for a guarantee from the Bermuda Government, The Royal Gazette has learned.

The requests by Gencom came to light after The Royal Gazette obtained an e-mail to potential lenders which claimed Government was providing a $50 million guarantee as part of a $100 million credit-enhanced note.

A Ministry of Finance spokeswoman told The Royal Gazette that as part of the acquisition of the hotel by Gencom – which bought hotel owners Westend Properties Ltd – the Government “did enter into a letter of intent (LOI) to provide a guarantee subject to a number of conditions precedent”.

But she added: “These conditions were not met and the LOI expired on 31 December 2020.

“In support of continued efforts to finance the proposed redevelopment, a new request has been made to the Government.

“Upon receipt of satisfactory due diligence information that has been requested, the Government will give the matter due consideration.”

The February 22 e-mail sent by agents of Gencom last month to private equity firms and others offered them an “opportunity” to help finance the multimillion dollar project.

The email from Lotus Capital Partners said Gencom paid $132 million for the hotel in December 2019 and that it planned to make savings when it reopened by switching to a “more seasonal” workforce and renegotiating its agreement with the Bermuda Industrial Union.

It added: “The loan opportunity will be split into two tranches: a low-leverage $160 million … traditional senior mortgage and a $100 million credit-enhanced note that is credit-enhanced by a $50 million guarantee from the Government of Bermuda.”

It added: “In addition to the loan guarantee, the credit-enhanced note will be amortised down over its term by a stream of priority tax payments derived from government incentives and further repaid by a portion of the hotel’s operating cashflow.”

The Ministry of Finance spokeswoman said: “The Government of Bermuda has not provided, and is not committed to provide, any form of financial guarantee to Westend Properties Ltd, Gencom or any other companies related to the Fairmont Southampton hotel.”

The intention to provide a guarantee was not mentioned when the hotel acquisition was announced, nor in last year’s annual Government Budget or this year’s Budget, announced by finance minister Curtis Dickinson on February 26 – four days after Lotus’s e-mail was sent.

Mr Dickinson did reveal that the Government had committed to a $10 million guarantee to support further development of the Bermudiana Beach Resort in Warwick.

The Minister said the redevelopment of that property – originally erected for affordable housing – was an example of “target stimulus” to bolster the economy.

Mr Dickinson said in his Budget address that Gencom was still trying to raise money for the 18-month planned refurbishment of the Fairmont Southampton resort, which closed its doors last October.

Gencom, an investment firm based in Miami, Florida, bought Westend in December 2019, thereby acquiring the Fairmont Southampton, which Westend already owned.

Gencom then announced plans for widespread upgrades of the resort.

The email to potential investors said the company paid $132 million for the property and “immediately began a comprehensive $175 million redevelopment plan to fully upgrade the guest rooms, amenities and physical plant …”

The Covid-19 pandemic and closure of the airport meant the 593-bed hotel was largely out of operation from March last year. About 750 staff were laid off in October.

West End Properties failed to pay the workers $11 million in redundancy payments, forcing Government to step in and lend the workers the money. Gencom repaid Government at the end of January.

The email from Lotus stated: “To combat the historical inefficiencies at the property, [Gencom’s] immediate business plan is focused on reducing overall labour costs.

“Through a combination of eliminating redundant headcount and transitioning to more seasonal labour, $4.6 million in expenses can be saved immediately.

“An additional $2.9 million in savings are expected in 2021 after an expiring collective bargaining agreement with the local hotel union is renegotiated and extended.”

BIU president Chris Furbert said on Wednesday that the collective bargaining agreement for the Fairmont Southampton between the Hotel Employers of Bermuda and the union was for 39 guaranteed weeks of work a year.

He said there were 650 union members in the bargaining unit, the majority of them Bermudian.

Mr Furbert declined to comment on the savings plan set out in the Lotus e-mail as he had not seen the email.

Gencom and Lotus have been approached for comment for this article and it will be updated if responses are received.

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Published March 11, 2021 at 8:09 am (Updated March 11, 2021 at 3:14 pm)

Gencom asks Government for multimillion-dollar guarantee

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