Straits Times: Thu, Aug 16
THE Government of Singapore Investment Corporation (GIC) may have gained the upper hand in a protracted tussle with two United States funds over four luxury resorts.
GIC, a major creditor to the properties, filed documents in New York's federal bankruptcy court last week charging that hedge fund Paulson & Co and Winthrop Realty Trust missed an interest payment on the debt.
Missing the payment would trigger an auction, the Wall Street Journal reported.
The properties, including the 780-room Grand Wailea Resort Hotel & Spa in Hawaii and the 796-room La Quinta Resort & Club PGA West in California, have been operating under bankruptcy-court protection for 18 months after the prior owners were unable to pay off $1.5 billion in mortgages.
In January last year, Paulson and Boston-based Winthrop gained control of the properties and put them under the bankruptcy court.
Their aim was to restructure the assets and repay the creditors while avoiding an auction.
But large creditors, including GIC, were growing impatient.
In February last year, GIC, which holds nearly US$400 million (S$496 million) of the mezzanine debt on the hotels, offered a way out by offering US$1.5 billion cash and debt for the properties.
In June last year, the US bankruptcy court gave Paulson more time to pursue the restructuring exercise instead.
The Wall Street Journal said Paulson pledged to refinance the resorts' debt and pay off GIC and other lenders by September 1 this year.
But with Paulson and Winthrop allegedly failing to make the August interest payment, it opened the door for GIC to force an auction on the properties.
A court judgment on an auction is expected towards the end of the year.
By calling for the auction, the Wall Street Journal said GIC was setting itself up for a confrontation with the US funds.
"It's not a dire situation. Either way, GIC stands to win," a source told The Straits Times.
If the properties are auctioned to a third party, GIC stands to recover its debt.
On the other hand, if GIC, which has a substantial portfolio of hospital assets under its belt, makes a bid at the auction and lands the prestigious hotels, it can ride on the tourism sector's promising growth prospects.
The four resorts posted net operating income of $75 million last year, up slightly from 2010 but still far less than the $190 million they generated in 2007, the article said, based on data from Morningstar Credit Ratings LLC.
If an auction takes place, the Wall Street Journal said Paulson would be eager to take part and "hang onto the properties, which also include the 739-room Arizona Biltmore Resort & Spa in Phoenix and the 279-room Claremont Resort & Spa in Berkeley, California".
The hedge fund has been working with private equity firm Five Mile Capital Partners to look for partners to raise about US$400 million in new equity and debt to pay off creditors, said the newspaper, quoting "multiple real estate executives".
Paulson group sold the Doral Golf Resort & Spa in Miami to real-estate mogul Donald Trump for $150 million this year and used the proceeds to pare down debt on the remaining four resorts
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