Atlantis Owner Said Facing Possible Default on Loan Held by Private Equity

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Kerzner International Holdings Ltd., the company that built Atlantis resorts in the Bahamas and Dubai, faces a loan covenant test that may trigger a default as soon as next month, people with knowledge of the matter said.

The company, which also runs seven One&Only resorts, may fail the test on an estimated $450 million loan, said the people, who sought anonymity because the situation is private. Centerbridge Capital Partners LP and TPG Capital are among the largest holders of the debt, which is backed in part by management contracts and equity in some properties, they said.

A default on so-called operating company debt may lead to the refinancing of Kerzner’s $3 billion total debt, asset sales or ownership changes, according to the people. The company, whose owners include Dubai World’s Istithmar, Goldman Sachs Group Inc. (GS)’s Whitehall Funds, Colony Capital LLC and founder Sol Kerzner, has struggled with debt since the 2008 financial crisis sank hotel values and reduced room rates.

“Kerzner is one of the last big commercial real estate restructurings of the last cycle,” said J. Soren Reynertson, New York-based managing general partner of GLC Advisors & Co., a restructuring specialist. “It is sure to garner attention not only because of its size but also because of the high profile of some of its assets.”

About $2.5 billion of separate property company debt due in September requires Kerzner, based in the Bahamas, to obtain an unqualified opinion from auditors on its 2010 financial statements, the people said. Another default may be triggered if that is withheld on concerns about the company’s ability to service or refinance its debt, said the people.

2006 Buyout

Kerzner, famous for Atlantis’s Mayan-themed water slides and up-close encounters with dolphins, sharks and rays, was taken private in 2006 for $3.6 billion by a group led by its namesake founder. The company has hired Blackstone Group LP and lawyers Kirkland & Ellis LLP as advisers.

The advisers have contacted hedge funds and private-equity firms including Paulson & Co. about investing new equity, one person said. No agreements have been reached, the person said.

Holders of Kerzner’s operating company debt, including Centerbridge, TPG, Abu Dhabi Commercial Bank and Fidelity Investments, are represented by investment bank Houlihan Lokey, according to the people.

Representatives of TPG Capital, based in Fort Worth, Texas, declined to comment, as did Houlihan Lokey and Paulson. New York-based Centerbridge, Abu Dhabi Commercial Bank, Dubai World and Fidelity didn’t respond to requests for comment. Representatives for Kerzner, Goldman Sachs and Colony Capital, along with company advisers Blackstone and Kirkland, also wouldn’t comment.

Sol Kerzner, 75, is known for building what his company website calls the “mythical city of Atlantis” resort on Paradise Island property he bought from Merv Griffin, the former talk show host and game show creator.

Dolphin Habitat

The resort is surrounded by an artificial open-air marine habitat featuring 50,000 sea creatures and a marina to “attract the sleek international mega-yacht set,” according to the site. A $1 billion expansion begun in 2007 added hotels, a new dolphin habitat and expanded the Aquaventure water park.

In September 2008, as the financial crisis deepened, Kerzner opened the second Atlantis in the Persian Gulf on the outer frond of Palm Jumeirah, Dubai’s man-made palm tree-shaped island.

Kerzner faces other challenges. A 2.5 percent royalty fee the company collects on revenue from the Mohegan Sun casino in Connecticut it once managed expires at the end of 2014. The same year, the Bahamas Atlantis will face a new rival six miles away when the $3.4 billion Baha Mar casino resort opens.

Sarkis Izmirlian, whose family built More London in the U.K., is developing the property, where work began last month. Baha Mar is financed by the Export-Import Bank of China and is being built by China State Construction & Engineering.

In October, BMB Group, a firm representing Malaysian investors, offered to pay $3.4 billion to $4 billion for Kerzner, according to BMB founder Rayo Withanage. The offer letter was received and Kerzner wasn’t for sale, the company said at the time.

8 COMMENTS

  1. I did not have an opportunity to respond to many of your reasoned conclusions, as I am working on a major show for The Redemption Forum which is taped on Wednesday, edited on Thursday and airs Sunday at 6PM on Loove 97FM.

    So what happened to the Technical and Vocational educational opportunities we used to provide at age 14 yrs, once it was determined that college was not in the cards for the not-so-intellectually gifted Bahamian youth?

    And who decided on the policy to allow all illegal Haitian nationals who evade the Defense Force Boats to join our already stretched labour pool, overcrowded schools and to give birth in our insufficient bed count hospital. Reminds me of the story of The Trojan Horse!

    It seems that our former British Administrators understood how to manage The Bahamas with greater efficiency than our so-called Brothers and Sisters!

    The one compelling thought that came to mind when you mentioned the functional illiteracy of many graduates is this: Wouldn’t there always be a need for Plumbers, Tilers, Masons, Carpenters, Roofers, Welders, Electricians and A/C Refrigeration specialists in a developing nation?

    But I do blame the present hopeless mess that our young peope find themselves in on the lack of leadership. There are so many opportunities which could be provided for their development and growth in the city of Freeport, alone!

    Freeport, Grand Bahama Island, a city designed for 500,000 residents with all the infrastructure in place for massive industrial assembly, storage and transhipment ventures, resulting from a unique geographical positioning and trade agreements offering great benefits to US manufacturers with European markets.

    Computers and other high tech equiptment which are immediately dutiable upon importation into the US, could be given final assembly in Freeport, inventoried, stored and shipped as the need arises, thus allowing the importer to reserve cash flow, avoiding the delayed offloading challenges of the Baltimore harbour, and thereby operate with a positive cash balance.

    Finally, I do not expect any benovelent investors to show up with any concern nor interests in our national development, however, what I do expect and demand for the handsomely paid Parliamentary representatives is the smart Marketing of what makes the world want to come here: GREAT OPPORTUNITIES TO PROFIT! So they can spare me the sun, sand and sea BULL! ‘Cause I know why they are really here! STORM it Is a national travesty if we, Bahamians are made to remain spectators in the fabulously wealthy BAHAMAS, while politicians seek ways and means to expand their personal, undisclosed wealth portfolios! The devil is a Liar!

    Btw, I liked your idea about exporting our near retirement Hotel managerial talent. It would be an interesting national conversation/survey to see if there are any who would voluntarily leave these Isles of June for anywhere in the Caribbean.

  2. @ Lady Russell

    TAKE NOTE OF THE FACT THAT WE (ALONE0 “OWN” THIS ISSUE. THIS IS THE KIND OF MATTER (WHAT IS HAPPENING AT KERZNER) THAT TRANSCENDS THE LOW BAR LEVEL POLITICS THAT WE (BAHAMIANS) ENJOY DISCUSSING IN OUR SMALL GROUPS, BARS, BARBER SHOPS AND IN THE OFFICE KITCHEN. WE HAVE DEGENERATED INTO A PEOPLE WHO ARE ENTIRELY PREDICATABLE (AND THE POLITICIANS LOVE IT).

    THE PRAGMATIC SOLUTION IS TO RECOMMEND THAT FACTORIES WE INVITED TO THE BAHAMAS TO OFFER MANY OF OUR YOUNG PEOPLE JOBS ON THE ASSEMBLY LINES. WE ALSO HAVE THE BENEFIT OF JOBS IN THE HOTEL INDUSTRY, BUT THE MIND NUMBING REALITY IS THAT THE BASIC EDUCATION LEVEL OF MANY SCHOOL LEAVERS IS BENEATH WHAT IS REQUIRED TO EXPOSE THEM TO HIGHER EDUCATION COURSES (FOR GOD SAKE MANY ARE FUNCTIONAL ILLITERATES).

    COLD AS THIS SOUNDS AND COMES ACROSS, WE MAY NOT BE ABLE TO HELP MANY OF THEM AND SHOULD CONCENTRATE THE RESOURCES ON ENSURING THAT WE DO NOT ADD TO THEIR NUMBERS. WE CAN PUT SAFETY NET PROGRAMS IN PLACE (I.E MAKING CONTINUING EDUCATION PROGRAM FREE ONLINE AND USE THE ACCUMULATED GRADES TOWARDS SOME NEW CERTIFICATE THAT IS THE EQUIVALENT TO THE BGCSE – CONSIDERING THEIR ADULT STATUS AND RESPONSIBILITIES). THE PROBLEM WITH EXISTINB PROGRAMS IS THEY ARE UNREAL TO THE CHALLENGES(FINANCIAL AND TIME) FACED BY THE VAST MAJORITY OF THOSE INTENDED TO BENEFIT FROM THEM. IN REAL TERMS NOBODY WANTS TO BE SEEN ATTEMPTING TO GET THROUGH HIGH SCHOOL TYPE EXAMS AT AGE 25, SO TO CREATE AN ENVIRONMENT IN WHICH HE/SHE IS PROMINENTLY DISPLAYED GOING ABOUT THAT IS LITERALLY TO “SHAME” THEM AWAY FROM THE PROGRAM. WHY NOT DO THE DARN THING ONLINE MINISTRY OF EDUCATION!!! THERE SHOULD BE A SMOOTH FLOW INTO THE COB PROGRAM IMMEDIATELY AFTER CERTAIN GRADE LEVELS HAVE BEEN ATTAINED ON EXAMS (SPECIFIC EXAMS) WITH AN OFFER OF FULL AND PARTIAL SCHOLARSHIPS TO THOSE ADULT STUDENTS. UNDERSTAND THAT I AM PROPOSING THAT WE IDENTIFY 80% OF PARTICIPANTS TO BE YOUNG MEN WHO UNDER PERFORMED IN HIGH SCHOOL BUT WHO WANT A SECOND CHANCE (THE HARD TIMES IN THE JOB ENVIRONMENT WILL BE NOTHING SHORT OF SOBERING TO THEM ABOUT HOW IMPORTANT EDUCATION IS).

    WE (BAHAMAS) BY VIRTUE OF OUR STATUS AS THE RICHEST CARIBBEAN NATION IN THE PAST, SHOULD HAVE BETTER EDUCATED OUR PEOPLE AND MADE THEM THE MOBILE PROFESSIONALS OF THE CARIBBEAN IN THE SAME WAY THAT CITIZENS OF THE USA HAVE BECOME THE MOBILE PROFESSIONALS OF THE FREE WORLD. INSTEAD BARBADOS, TRINIDAD AND JAMAICA ENJOY THIS STATUS ALL BECAUSE WE HAVE NO NATIONAL PLAN. IT IS AMAZING TO OBSERVE “WHAT WE DID NOT DO” WITH THE OPPORTUNITY OF BROUGHT BY YEARS OF PLENTY.

    MORE ON THIS POINT LATER ….

  3. @ Lady Russell

    CONTINUING …..

    THIS CIRCUMSTANCE WILL COST THIS COUNTRY HUGE SUMS OF MONEY IN THE YEARS TO COME, BECAUSE WE ARE TAKING-ON ADULTS, WITHOUT PRIOR KNOWLEDGE OF PRE-EXISTING HEALTH ISSUES, AND THROUGH OUR “SOCIAL ACTIVISM CAMPAIGNS” TO PROVIDE “FREE” MEDICAL SUPPORT AND MEDICINE WE WILL OVER TAX OURSELVES, EVEN THOUGH THE PLAN IS WELL INTENTIONED. YOU JUST CAN’T TAKE ON THE NUMBER OF ADULTS ILLEGAL MIGRANTS THAT WE DO WITHOUT UNDERMINING THE ENTIRE PROGRAM. WE CALCUALTED ON THE BASIS OF KNOWN “BAHAMIAN” CONTRIBUTORS AND THEIR BIRTH/DEATH RATE (THAT IS WHAT NIB BASED ITS CALCULATIONS ON), BUT WHEN HUGE NUMBERS OF ADULTS COME INTO THE EMPLOYMENT/HEALTH CARE EQUATION ABRUPTLY, HOW DO WE RECALIBRATE AND STRIKE A BALANCE? LADY RUSSELL, CLEARLY THE NOTION THAT THE GOVERNMENT NEEDS TO CONSTANTLY STIMULATE THE ECONOMY SO THAT ABOUT 5000 SCHOOL LEAVERS CAN FIND JOBS ANNUALLY IS AN UNDER ESTIMATION OF THE FACTS. EVEN IF THE ECONOMY IS STIMULATED (GOVERNMENT DOES ITS PART) THOSE JOBS ARE BEING SWALLOWED-UP BY MIGRANT WORKERS, LEAVING THE BAHAMIAN RECENT GRADUATES UNEMPLOYED AND THE GOVERNMENT OFFICIALS BEWILDERED (BECAUSE THEIR ASSESSMENT OF WHAT IS HAPPENING IN THE COUNTRY IS TOO NARROW).

    NOW BACK TO THE HOTELIERS (THOSE “NOT” INTERESTED IN BECOME INVESTORS/PROPERTY OWNERS), THEY CAN BUNDLE THEMSELVES INTO PROFESSIONAL ADVISERS GROUPS AND MARKET THEIR COLLECTIVE SKILLS THROUGHOUT THE CARIBBEAN, WHERE COUNTRIES ARE JUST GETTING INTO THE TOURISM INDUSTRY. I AM NOT TALKING ABOUT THE CONFERENCE SPEAKER TYPE EXPERT, BUT RATHER THE HANDS-ON EXPERTS WHO WILL GO INTO THE VARIOUS DEPARTMENTS TO OBSERVE AND TRAIN THE STAFF WITH THE OBJECTIVE OF BRINGING THEM UP TO THE 5 STAR STANDARDS. THEY CAN DECIDE ABOUT THE “WHO” AND “HOW” TO COMPOSE THEIR GROUPS, BUT WILL ALWAYS NEED MEMBERS WITH ADMINISTRATIVE AND MANGERIAL SKILLS (TO MAKE THE GROUP THE FULL PACKAGE). HOTELS CAN THEN REQUEST THE ENTIRE PACKAGE OR THE SERVICES OF ONLY CERTAIN MEMBERS. DIFFERENT GROUPS CAN HAVE SPECIFIC AREAS OF CONCENTRATION SO THAT THERE IS NOT DUPLICATION OF EXPERTISE OVERALL. THIS IS THE SKELETON (FRAME) OF THE IDEA (I’LL HAVE TO GET PAID WELL TO GO BEYOND THIS). THIS TAKES CARE OF THE WELL TRAINED, EXPERIENCED, RETIRED OR NEARING RETIREMENT HOTELIER (WHO HAS SO MUCH TO OFFER). LADY RUSSELL, YOU COME IN AS A MARKETING EXPERT AND SPOKESPERSON AT PUBLIC RELATIONS EVENTS, ETC., ETC., (THIS IS “DO-ABLE”) TO SELL THEM BASED ON THEIR INDUSTRY CONTRIBUTION AND DETAILED JOB KNOWLEDGE. WHY ARE THEY JUST GARDENING AND HANGING OUT IN SO CALLED “RETIREMENT”?

    WILL CONTINUE WITH THE YOUNG UNEMPLOYED “BAHAMIANS” SEGMENT OF THIS POST LATER (BUSINESS CALLS).

    • @STORM

      Your comments caused me to reflect on the worsening state of job opportunities for Bahamians and recent comments made in the House of Assembly regarding BAHAMIANIZATION, which beggs the question:

      Who is this masked-man who calls himself Hubert Alexander Ingraham? Is he really an Ingraham?
      Has anyone checked his paperwork? Since he is the child of an unmarried female,then where is his mother’s home? We need to get real in The Bahamas!

      The reason that this question must be asked and answered is becauuse if Hubert Ingraham is not in fact an Ingraham, then some of the recent horrors experienced by the Bahamian people may not have been accidental.

  4. @ Lady Russell

    I DECIDED TO ADDRESS THE TWO-PARTS QUESTION POSED BY YOU IN TWO DISTINCT RESPONSES. THIS ASPECT DEALS WITH UNEMPLOYMENT IN THE SHORT TERM.

    MANY OF THE JOBS THAT HAVE GONE AWAY WILL NOT RETURN. WHY? THIS IS BECAUSE THE MARKET-PLACE NO LONGER REQUIRES CERTAIN SERVICES, AUTOMATION HAS REPLACED WORKERS IN SOME SECTORS AND THIS COUNTRY CONTINUES TO SWELL AT IT’S BASE DUE TO ILLEGAL MIGRATION ISSUES (CREATING A LARGE POOL OF UNSKILLED POTENTIAL WORKERS TO PICK FROM).

    THIS HAS RESULTED IN OUR COUNTRY’S MOST RECENT HIGH SCHOOL GRADUATES COMPETING FOR ENTRY LEVEL, LOW PAY JOBS WITH MATURE MIGRANTS (LEGAL & ILLEGAL). AT CERTAIN FOOD STORES YOU NOW SEE ADULT MIGRANTS “WORKING” FULL TIME AS PACKING BOYS/GIRLS. THIS PUSHES INTO THE ENTRY LEVEL LABOR FORCE, BECAUSE EVERY EMPLOYER KNOWS THAT A PROSPECT WITH FAMILY RESPONSIBILITIES IS MORE LIKELY TO BE COMMITED TO A LOW PAY (ENTRY LEVEL) JOB THAN A “CHILD” (18-20 YEARS) WHO CAN QUIT ON A WHIM BECAUSE OF LIMITED OR NO FINANCIAL RESPONSIBILITIES.

    WILL CONTINUE THIS POST LATER TONIGHT … BUSINESS CALLS.

  5. @ Lady Russell

    THIS IS WHERE THE NOTION OF INVOLVING BAHAMIANS WITH “FOREIGN STRATEGIC PARTNERS” IS BENEFICIAL TO BAHAMIANS.

    THE GOVERNMENT CAN GIVE SELECTED BAHAMIAN HOTELIERS/INVESTORS THE LAND IN FAMILY ISLANDS (BEACH FRONT) AND CONNECT THEM WITH INVESTMENT BANKERS IN EUROPE, JAPAN AND CANADA, WHO WILL DO PRECISELY WHAT IS “ALWAYS DONE”, PITCH IT TO BRAND NAME, NICHE MARKET (BOUTIQUE TYPE – TO USE YOUR WORDS) HOTELS ABROAD. THEY ARE ALWAYS LOOKING TO EXPAND IN THESE PARTS, BUT THE HIGH COST (BASED ON THEIR RELATIVELY SMALL SIZE AND CAPITAL BASED USUALLY PROHIBITS SUCH UNDERTAKINGS). IT WILL BE A WIN-WIN ARRANGEMENT BECAUSE THE BOUTIQUE HOTELS GET A PRESENCE, KNOW THAT THE OPERATORS HAVE EXPERIENCE IN HIGH STANDARDS HOTELS MANAGEMENT, AND CAN REFER THEIR ALREADY SATISFIED CLIENTS WHO LOOK FOR “CERTAIN” STANDARDS IN LUXURY AND SERVICE (AND CAN ANTICIPATE IT BEING HERE BASED ON CROSS BORDER TRAINING SESSIONS, ETC.) AND THE BAHAMIAN HOTELS WILL GET TO PLUG INTO A MARKET THAT WOULD HAVE COST THEM HUNDREDS OF THOUSANDS TO ADVERTISE TOO JUST BECAUSE OF THAT ASSOCIATION.

    IT ALL REST ON THE PRIME LAND & BEACH COMBINATION THAT IS ALWAYS OFFERED TO “OTHERS” BUT NOT TO “US”. MONEY IS ALWAYS IN SEARCH OF NEW OPPORTUNITIES TO MULTIPLY ITSELF AND THE ONLY REASON THAT IT HASN’T CONNECTED WITH “US” YET IS BECAUSE WE “CIRCULATE” IN A DIFFERENT POOL. CONNECT THE OPPORTUNITY SEEKERS TO THE INVESTORS AND DREAMS WILL COME TRUE (BAHMAR, KERZNER, ALBANY, ETC., ALL ATTEST TO THIS FACT). LADY RUSSELL, DO YOU REALIZE THAT BUTCH (OF SANDALS) DIDN’T KNOW THE HOTEL INDUSTRY (THE FINER DETAILS OF HOW TO MAKE IT WORK) AS WELL AS MANY BAHAMIANS HOTEL MANAGERS AND DEPARTMENT DIRECTORS DID WHEN HE STARTED (WE WERE THEN AND STILL REMAIN THE REGION LEADER), YET HE HAS ACHIEVED REMARKABLE SUCCESS. IT STANDS TO REASON THAT SUCH SUCCESS COULD HAVE BEEN THEIRS HAD THE OPPORTUNITY BEEN PRESENTED.

  6. THIS “MATTER” MORE THAN ALL OF THE DISTRACTING “SMALL TALK” ABOUT “ISLAND POLITICS” IS GOING TO DETERMINE THE WAY THAT THOUSANDS OF BAHAMIANS LIVE IN THE SHORT TERM. FAILURE BY ATLANTIS, WHETEHR IT IS DUE TO FACTORS SPECIFIC TO THE BAHAMAS OR NOT, WILL SEND “CHILLS” THROUGHOUT THE INDUSTRY. REMEMBER, WE (BAHAMIANS) BET THE PROVERBIAL HOUSE AND KIDS ON THE LONG TERM SUCCESS OF ATLANTIS. THIS IS THE “DOWN SIDE” OF BEING A ONE COMPANY TOWN (YOUR SUCCESS IS LINKED TO ITS SUCCESS AND YOUR FAILURE IS LINKED TO ITS FAILURE). RATHER THAN TAKING THE SIMPLE LESSON OF AVOIDING THE ONE COMPANY TOWN COMPLEX, WE EMBRACED IT AGAIN IN THE FORM OF BAHMAR. IN FINANCIAL TERMS, “ONE SHOULD BE DIVERSIFIED IN INVESTMENTS CHOICES SO THAT THE FAILURE OF ONE INVESTMENT DOES NOT DESTROY THE ENTIRE PORTFOLIO.”

    I STILL BELIEVE THAT THE APPROVAL OF THE BAHMAR MODEL IS A MISTAKE BECAUSE OF WHERE WE ARE IN TOURISM DEVELOPMENT AND WHAT WE NOW NEED TO BRING BALANCE INTO THE ACCOMMODATIONS EQUATION. CERTAIN OTHER CARIBBEAN NATIONS THAT ARE JUST STARTING-OUT NEED THE BAHMAR TYPE HOTEL – NOT US. WE ARE A WORLD REKNOWN, LEADING UPSCALE BRAND DESTINATION WITH A NEED FOR THE KIND OF HOTEL ACCOMMODATIONS THAT WOULD POSITION US TO CATER TO NICHE MARKETS. THIS SHOULD TAKE US IN THE DIRECTION OF SMALLER, MORE PERSONAL PROPERTIES (ON THE SIZE AND LUXURY SCALE OF ONE AND ONLY OCEAN CLUB). HEREIN LIES THE OPPORTUNITY FOR MANY BAHAMIAN HOTELIERS WHO HAVE MADE A CAREER MANAGING UPSCALE PROPERTIES TO ENTER THE MARKET AS OWNERS/INVESTORS (AND HOPEFULLY BRANCH OUT INTO OTHER COUNTRIES AFTER ACHIEVING LOCAL SUCCESS – SANDALS IS A LIVING EXAMPLE THAT THE CONCEPT CAN WORK). TYRONE NABBIE IS A BAHAMIAN SUCCESS STORY (OPERATES FROM ORLANDO, FLORIDA) AND AN INSPIRATIONAL MODEL FOR LOCAL HOTELIERS TO FOLLOW. HE DEMONSTRATES THAT THE EDUCATION AND EXPERIENCE GATHERED HERE (IN THE BAHAMAS) IS WORTH SOMETHING ELSEWHERE AND CAN BE TRANSLATED INTO THE STUFF THAT BRINGS ABOUT SUCCESS BEYOND THESE SHORES.

    • @STORM

      You are correct in your assessment that the boutique sized hotel operations would prove most successul in the international tourism market. I hope that some arm of government is searching for more of these potential investments. However, what do you suggest for the salary needs of thousands of Bahamian young persons in the interim?

      After the “Joneser” stole my car battery and stered, I simply wished all unemployed Bahamians to have the possibility of finding work. Bahamar seemed the only available option for immediate relief.

      Since it will take several years for Bahamar’s completion, it will be a long time before its room availability provides any competition to Kerzner’s Atlantis operations, right?

      My point is this: Kerzner’s cry of WOLF! was a reflection of his present economic woes, brought on by his huge investment in Dubai, which have not been profitable due to world economic pressures. Again, nothing to do with any present competing investments in The Bahamas.

      While I wish Mr. Kerzner every good wish in sorting out his financial woes, I also wish the investors at Bahamar, every success in finding new European markets of tourists to fill their hotel rooms and purchase their time-share units.

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