A read of the ruling handed down by a U.S. judge in relation to the investor squabble over Kerzner International's Paradise Island assets, shows that the judge agreed with the position of a group of Kerzner lenders that there existed a 'threat of irreparable harm' had the Brookfield ownership transfer deal proceeded.
Brookfield, meanwhile, had argued that such concerns expressed by the other Kerzner International creditors that they would be negatively impacted by the deal were 'speculative'.
As was widely reported yesterday, Brookfield, a Canadian-based asset management group, canceled its proposed transaction to swap $175 million in debt for ownership of Kerzner International's Paradise Island properties.
Vice Chancellor Donald F. Parsons granted a restraining order on Friday, which resulted in Brookfield canceling the deal.
The lawsuit was brought by Kerzner lenders more senior to Brookfield. It was filed in the Court of Chancery of the State of Delaware.
In the ruling, Parsons concluded that "the senior holders have stated colorable claims and made a sufficient showing that they would suffer imminent irreparable harm if the proposed transaction was allowed to close.
"Furthermore, I find that this potential irreparable harm outweighs the harm that would result to [Brookfield] of delaying the closing for a few weeks until an injunction motion can be heard."
Brookfield had dismissed as speculation the other lenders' argument that as a result of the transaction proposed between Brookfield and Kerzner, their (the other lenders) investment would have faced greater risk, and that the risk itself constitutes irreparable injury.
Brookfield had asserted that the proposed transaction would have benefited all lenders and avoid the undesirable result of foreclosure on the Kerzner properties, which would leave all parties worse off.
The judge determined that if the proposed transaction was allowed to close, the lenders more senior to Brookfield stood to lose the benefit of contractually-negotiated rights attached to the loan to Kerzner.
"These rights are valuable to plaintiffs (the creditors who filed the lawsuit) not only because they increase the likelihood that plaintiffs will be repaid the principal and interest owed to them under the loan, but also because they provide a certain degree of leverage relative to other participants and the borrower (Kerzner) in situations where, as here, modifications to the loan are being negotiated," the ruling said.
"As a result, the risk to plaintiffs from the proposed transaction is not simply that their investment may be less secure, but also that plaintiffs will be deprived of the opportunity to assert these rights as leverage against the other participants and borrowers in modifying the loan and reshaping the commercial relationship between the participants and the borrower."
The judge had set a trial date for January 27, but that became unnecessary after Brookfield walked away from the deal.
Prime Minister Hubert Ingraham has said the various lenders will meet and the government expects to have an update on the matter by Friday.

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