A Wall Street credit ratings agency has projected that Atlantis will experience "significant competition" from Baha Mar; the agency has used this prediction, in part, in quantifying its projection of Atlantis' "long term sustainable value". The long-term value, it says, is over 50 percent less than the value quoted by appraisers.
This comes as an international news agency has reported that the Atlantis refinancing deal, which the resort said was concluded in early July, could yet be "hampered" by the banks' decision not to seek a rating of debt instruments, which form part of the deal, from ratings agency Standard and Poor's due to concerns over a regulatory probe into that entity.
Quoting anonymous industry sources, Bloomberg reported on July 30 that banks seeking to sell billions in commercial mortgage-backed securities (CMBS) that form part of Atlantis' $1.95 billion refinancing deal, among other major transactions, were likely to avoid an S&P rating for the securities despite S&P traditionally being the dominant grader of such debt.
On August 6, the news agency followed up in a report stating that banks would skip S&P ratings for the majority of the $1 billion in commercial bonds being sold to raise financing for Atlantis. The report suggests that, contrary to earlier statements by Atlantis and Brookfield Asset Management, its owner, stating that the recapitalization was complete, this may not be the case.
S&P is currently under the spotlight after the U.S. Securities Exchange Commission made a July 23 announcement of an investigation concerning commercial-mortgage deals that S&P rated in 2011.
Despite banks Deutsche Bank AG, Morgan Stanley and Citigroup - who are managing the Atlantis offering, according to Bloomberg sources - determining they will seek out other agencies to rate the Atlantis debt, S&P released a detailed report on how it would rate the various portions of the deal.
In that report, S&P provides an analysis of the property; an analysis of the characteristics of the loan, including the terms of the loan; payments and an analysis of the overall transaction, including the structure of the securitization.
It adds that the "expected closing date" of the transaction is August 19, 2014.
Notably, S&P said it would cap its ratings on the higher-ranking portions of the Atlantis deal at BBB+, the third-lowest investment-grade level, because of risks tied to the property being in The Bahamas.

Meanwhile, within that report, S&P also details how it expects Atlantis will face "significant competition from Baha Mar" that will result in cash flows significantly below that which have been projected by Atlantis itself and an appraiser brought in as part of the refinancing effort.
"We expect to compete directly with Atlantis due to their proximity. However, the hotels are each operated independently, will share a smaller beach and will not have a vast array of amenities like Atlantis. In addition, the new brand affiliation (between Atlantis and) Marriott may help offset some of the potential demand decline stemming from the supply increase. Nevertheless, we assumed the NCF (net cash flow) to be significantly below recent levels and our long-term sustainable value estimate is 54.4 percent lower than the appraiser's valuation," said the report.
According to S&P spokesperson, April Kabahar, when analyzing a CMBS, S&P examines the underlying property - in this case the Atlantis resort - and derives a property's long-term sustainable net cash flow, taking into consideration the cyclical nature of the commercial real estate markets and also volatility in certain asset/property types.
By looking at the revenues and expenses that could impact the property's cash flow, such as occupancy rates, capital expenses and more, the agency makes certain projections. The number derived from this analysis represents S&P's "long term sustainable" NCF, equivalent to a projection of the property's value.
Forming part of this projection is S&P's projection of Atlantis' estimated total revenue for 2014. S&Pset this at $774.1 million, some six percent lower than the $822.9 million projected by its appraiser in the debt deal, and some 2.4 percent lower than the projection of the issuer - in this case Atlantis itself.
On the upside, the report adds that Atlantis is closer to the cruise terminal, and Baha Mar hotels are primarily targeting wealthy adult travelers and casino patrons, rather than families.
"While the new Marriott affiliation will affect the Atlantis' performance, particularly the higher ADR (average daily room rate) Cove portion of the hotel, which was developed primarily to cater to adults, as well as the Atlantis' casino revenue," adds S&P.
Contacted for comment on S&P's analysis, Ed Fields, senior vice president of public affairs for Atlantis said: "Atlantis will do everything it can to continue to maintain and grow its market share."

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