The Tribune

By NEIL HARTNELL Tribune Business Editor The Government has been urged to publish a "broad Bahamian policy" on Atlantis, a former finance minister urging it to put this nation's interests "in the face" of the parties starting to fight over the resort's ownership and ensure the situation does not escalate to Grand Bahama Port Authority-type (GBPA) levels. James Smith said that with some of Kerzner International's senior mortgage note holders taking legal action against Brookfield Asset Management, the Canadian asset manager, over its proposed $175 million debt-for-equity swap with the Atlantis owner, it was vital that the Government outlined what it wanted to see happen on Paradise Island to all concerned. The former minister of state for finance in the Christie-led 2002-2007 PLP administration said the Ingraham administration "had every right" to intervene over the developing Atlantis and One & Only Ocean Club ownership controversy, given the "millions of dollars" in tax and investment incentives granted to Kerzner International for their development. And Mr Smith was joined by the former Bahamas Chamber of Commerce, president, Dionisio D'Aguilar, in warning that Atlantis and the One & Only Ocean Club should not be allowed to mirror the GBPA ownership dispute, where costly and protracted litigation effectively paralysed that organisation - and the city of Freeport - for three-four years. Speaking after it was revealed that several senior Kerzner International lenders had initiated action against Brookfield in the US, in a bid to stop it taking equity ownership of the two Paradise Island resort properties, Mr Smith said: "If a row is going on over Bahamian property, it doesn't bode well for the Bahamas, given Atlantis's importance to tourism. "The authorities have got to keep a very tight rein on this, keep a close watch, and the time may have come to outline a broad Bahamian policy with respect to Atlantis. It might be phrased to say the primary concern of the Government is the retention of jobs, and that Atlantis remains an active player in the local tourism industry." Mr Smith said such wording would imply that the Ingraham administration, or whoever succeeded it in the upcoming general election, was "not going to contemplate the property being broken up" into different segments and sold-off to re-pay Kerzner International's creditors. Warning against such a "carve up", the former finance minister said the Bahamian government had "every right" to intervene in a potential Paradise Island ownership dispute, "given the amount of concessions involved. "Millions of dollars were given in tax concessions to pay for its [Paradise Island's] development, and you can't just push that under the table," Mr Smith added. "I think they [the Government] need to walk in and have talks with everybody involved - Mr Kerzner, the new guys, the senior bond holders- and put in their face the interests of the Bahamas, and what it wants to see in terms of maintenance of that property." The legal action initiated in the Delaware Chancery Court against Brookfield by several senior Kerzner International note holders only adds to the growing sense of unease and uncertainty over the Paradise Island properties' immediate and long-term futures. This will not only impact Kerzner International's 7,500 employees on Paradise Island, but also all businesses that provide goods and services to the two resorts. In short, the ripple effects from any protracted litigation and ownership dispute at the Bahamas' largest private sector employer will be felt throughout the economy, and by almost every Bahamian and resident. Just what is at stake was outlined by Prime Minister Hubert Ingraham, who on the day the Brookfield deal was announced said Kerzner International accounted for 5 per cent of the Bahamian labour force, generating a $189 million annual payroll. Each direct job at Kerzner created an additional 1.25 to 1.5 indirect Bahamian jobs, the Prime Minister said, a total of 10,000 to 12,000. Some 18,000-20,000 jobs; 15 per cent of all jobs in the Bahamian economy, were related directly to Paradise Island. The resorts purchased some $190 million in local goods and services, and paid $47 million annually to BEC. Several senior holders of Kerzner International's $2.6 billion mortgage notes are attempting to overturn through the courts the agreement struck between the resort developer and Brookfield, alleging that the latter negotiated a deal that will be benefit it at their expense. Essentially, they are alleging that Brookfield engaged in 'self-dealing', concocting a 'sweetheart deal' that will benefit the Toronto-headquartered asset manager at their expense. They are claiming it had a fiduciary responsibility to act in the best interest of all Kerzner International's lender/creditors, as it was the point organisation in talks with the developer over the loan. The Delaware lawsuit is likely to be an attempt by Kerzner International's senior mortgage note holders to protect their interests, with the case being used as leverage to extract the best possible deal from Brookfield. The Canadian asset manager, if its debt-for-equity swap goes through, will sit in Kerzner's seat to negotiate with the other lenders over the remaining $2.1 billion debt owed to them. Mr Smith, meanwhile, pointed out that Kerzner International's senior lenders were likely to be upset that they had been usurped by Brookfield, a more junior lender with, at $175 million, less at stake than themselves. "Brookfield can easily flip the properties, taking everything out of it, at the expense of the other debtors," the former finance minister told Tribune Business. "The guys seemingly calling the shots, the Canadian guys, Brookfield, were seemingly not even prepared to show flexibility in their earlier negotiations with Kerzner, so you're dealing with a very hard-nosed group." Brookfield, Mr Smith said, had - at least in the eyes of the senior debt holders - come in through the 'back door' via their mezzanine financing participation, which meant they were able to take an equity stake if the lender, Kerzner International, defaulted on the debt repayments. Any protracted ownership battle on Paradise Island is badly timed from a macroeconomic viewpoint too, given the tourism and hotel industry's struggles to recover from the recession. Prolonged litigation and uncertainty, Mr Smith added, would inevitably impact Kerzner International's management and ability to plan. It might also impact Paradise Island's ability to respond to both the increase in local and international competition, in the shape of Baha Mar's $2.6 billion Cable Beach redevelopment and the growing threat of proposed south Florida mega resort/casinos. "Atlantis could begin to parallel Grand Bahama, and the corporate infighting that took place at the Port Authority," Mr Smith told Tribune Business. "If the new owners are fighting, it means there's no medium or long-term strategy being implemented. "Management cannot function effectively when the owners are still determining who controls what. This doesn't augur well for the property and the imminent threat of Baha Mar a few years out." Mr Smith also questioned whether Brookfield would be as committed to doing what was in the Bahamas' best interests as Kerzner seemingly had been. Mr D'Aguilar, the former Chamber of Commerce president, described the emerging battle for control of Paradise Island's future as "just kind of messy". He added: "We don't want this to be suspended in litigation indefinitely, because then we don't know who the owner is. This create this spectre of litigation that could drag on for years. "First of all, who are the owners? Who's running it? Who's got the cash to come up with capital expenditure and do things that need to be done? Without leadership, you become rudderless. They don't want this type of Port Authority concept arising."