Brookfield Asset Management has cancelled the deal to exchange its $175 million of debt for controlling equity in the Atlantis Resort and other Kerzner properties.
Brookfield made the decision to cancel the deal after other Kerzner creditors filed a suit in the United States in an attempt to block the arrangement.
In November, Brookfield reached a debt for equity deal with Kerzner International Holdings Ltd. where Kerzner would forfeit the Atlantis Resort, the One & Only Ocean Club (also on Paradise Island) and a 50% stake in the One & Only Palmilla resort near Los Cabos, Mexico, in exchange for the $175 million Kerzner owed Brookfield.
In 2006, Kerzner had mortgaged the properties in an effort to raise $2.5 billion to take the company private. In 2008, after the bottom fell out of the financial world, Kerzner was forced to reschedule the debt a few times as the company struggled to make loan payments.
In September, 2011, the company missed an important payment due date and Brookfield took action.
Brookfield is an asset management company from Toronto that has been called a predatory lender and is currently involved in a few lawsuits where it is alleged the company had engaged in unsavoury loan practices.
Their decision to walk away from the Kerzner deal came after other, more senior, creditors filed suit in the United Sates claiming Brookfied had engaged in “brazen self-dealing” with total disregard to the fate of the other creditors.
The plaintiffs alleged that Brookfield colluded with junior lender PCCP and special servicer Wells Fargo, exploiting certain administrative powers to carry out the transfer of assets without approval and in violation of the loan agreement.
Those creditors, including Trilogy Portfolio Co., Canyon Value Realization Fund,the Canyon Value Realization Master Fund, and Canyon Balanced Master Fund Ltd., argued that the Brookfield deal was to their detriment, in violation of the original terms of Kerzner’s loans.
On Friday, Delaware Judge Donald F. Parsons Jr. granted a temporary restraining order to bar Brookfield from closing the deal until a hearing for a preliminary injunction could be held Jan. 27.
Brookfield chose to walk away rather than wait for the hearing.
In light of this recent development, it remains unclear which of Kerzner’s other creditors will gain control of the properties, which currently continue to be managed by Kerzner
The Wall Street Journal’s Kris Hudson reports that possibilities mentioned by people familiar with the matter are, “Brookfield and Kerzner putting the assets into a trust while Brookfield goes forward with a formal foreclosure as Kerzner’s junior-most creditor.”
Other scenarios include Brookfield reaching a compromise with other creditors, allowing it to take over the resorts.
As a last resort (no pun intended) the properties could be put into bankruptcy, although that would leave Kerzner holding the bag for up to $500 million in costs associated with such a move.
“We’re reviewing all of our options,” Brookfield spokesman Andrew Willis told the WSJ on Tuesday, confirming that Brookfield has cancelled its original deal.
The opposition parties in the Bahamas have been critical of the government for not releasing details of the Brookfield-Kerzner deal to the Bahamian public. There has also been concern over the fate of the 7,000 employees. Atlantis is the largest private employer in the Bahamas.
Those concerns are now heightened as the future of the resort is even more in a state of flux.
