The Tribune

By NEIL HARTNELL Tribune Business Editor KERZNER International (Bahamas) chief yesterday acknowledged that finalising this year's $65 million capital investment plan for its Paradise Island resorts is being delayed by the ongoing $2.5 billion debt restructuring talks being held by its lenders, as a revised debt-for-equity swap begins to materialise. George Markantonis, Kerzner International (Bahamas) president and managing director, responding to Tribune Business's questions, said that finalising the capital upgrade plans for Atlantis was being held up "because of the transaction, the debt restructuring". Kerzner International had "already started with some small projects" on Paradise Island, Mr Markantonis said, indicating that the larger capital expenditure plans were on hold until the company's lenders determined the fate - and future ownership - of the Atlantis and One & Only Ocean Club resorts, thus placing them in a position to formally sign-off on them. Meanwhile, Tribune Business has been told by sources close to the situation that the original $175 million debt-for-equity swap proposed by Toronto-based Brookfield Asset Management has been revived, with the junior lenders who previously objected to the deal now likely to be involved in the equity component of the swap. Brookfield was last month forced to cancel its proposed deal, which would have seen it swap some $175 million in debt owed to it by Kerzner International for 100 per cent ownership of the Atlantis and One & Only Ocean resorts in the Bahamas, and the One & Only Palmilla in Mexico. It took this decision after two other 'junior' hedge fund lenders to Kerzner International, in the shape of the Trilogy Portfolio Company, Canyon Value Realisation Fund, Canyon Value Realisation Master Fund, and Canyon Balanced Master Fund, successfully obtained a temporary restraining order from the Delaware Chancery Court that barred Brookfield from closing the deal with Kerzner. Collectively, these lenders are said to hold $112 million or less than 5 per cent of Kerzner International's outstanding debt, so including them in the 'equity' part of any swap - giving them an ownership stake in Atlantis and the One & Only Ocean Club, together with Brookfield - may not be too difficult, once the terms and fine details acceptable to all can be worked out. Andrew Willis, Brookfield's spokesman, simply said "can't comment" when contacted by Tribune Business, and asked about the progress of negotiations and the inclusion of the recalcitrant junior lenders in the 'equity' side of the swap with Kerzner International. Mr Markantonis, for his part, confirmed that talks between Kerzner International's six-seven lenders on the way forward continued, although the resort owner/developer was not directly involved itself. "It's still ongoing. The conversations are still ongoing. We're not directly involved with it," Mr Markantonis told Tribune Business. When it was suggested that the lenders would seek to resolve their differences sooner rather than later, he replied: "I'm absolutely sure of that." Tribune Business's sources, though, suggested that overshadowing the talks between the lenders was the spectre of Baha Mar's $2.6 billion Cable Beach development and the involvement there of the Chinese government, and how this might impact their "exit strategy" from Paradise Island. Apart from sorting out the impasse over Kerzner International's $2.5 billion debt burden, which has been in default for almost six months since early September 2011, Tribune Business sources suggested the lending group is also focused on the 'end game' - how they can exit from Paradise Island and recover the full sums owed to them, plus obtain any 'upside' above this amount. It was suggested to this newspaper that Brookfield and any other lenders looking to participate in the 'equity' swap, and ownership of the Paradise Island resorts, would hold them for several years and extract upside profits before seeking to sell or 'flip' them to another buyer - likely when the global economy has improved. This is supported by the just two-year extension Brookfield was seeking to the original Kerzner loan terms as part of the previous $175 million debt-for-equity swap. However, by this time, Baha Mar's $2.6 billion development is likely to be operational and competing directly with Kerzner International and Atlantis/One & Only Ocean Club for high-end visitors. This scenario would only depress buyer interest and the price they are willing to pay for the Paradise Island assets, hence the lending group's dilemma.