ORIX filing reveals botched Atlantis sell-off

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April 10, 2012

Lenders in Kerzner International's $2.5 billion mortgage debt planned to transfer Atlantis to a trust so the property could be appraised and sold off at the best possible price, according to court documents.
The disclosure, included in documents filed this month in the Court of Chancery in Delaware, details the series of events following the dropped lawsuit against Brookfield Asset Management in January. According to ORIX Capital Markets, another lender representing $27 million in the loan, the plan was to sell Atlantis so participants would equally benefit "from sale proceeds in excess of the outstanding balance".
However, on March 22, ORIX alleged Brookfield reversed course and presented a proposal that "bought the cooperation" of other lenders, allowing the Canadian firm to exchange $175 million in debt for Kerzner International's assets in The Bahamas and Mexico.
The court filing, the second against Brookfield in recent months, alleged once again a breach in contract and fiduciary duty, intended to orchestrate a deal that eliminates any potential benefit for the other lenders.
Andrew Willis, senior vice president of communications and media at Brookfield, told Guardian Business the lawsuit "was withdrawn within a couple hours".
This newspaper has been unable to reach lawyers from ORIX, and has not seen court documents verifying the dropped case.
ORIX said an "asset business plan" set forth virtually the same transaction first proposed by Brookfield back in January.
At that time, Trilogy Portfolio Company sued Brookfield for "brazen self-dealing" and bringing about a "sweetheart deal". Trilogy later dropped the lawsuit when the Canadian firm withdrew the debt-for-equity swap and returned to the bargaining table.
These latest court documents claim Brookfield offered to purchase $30 million in bonds to bring about Trilogy's cooperation. It further alleges it would have "the trust" reimburse $2 million of its
legal fees from the property cash flow "to buy Trilogy plaintiffs' cooperation, with cash that could be used to pay down the outstanding principal of the mortgage loan for the benefit for all participants".
"Through the proposed Brookfield transaction, the Brookfield defendants once again seek to usurp all the upside potential of the borrower and the property for itself, to the material detriment of the more senior participants, who would be deprived of some or all of the Kerzner guarantees and other rights arising under the governing agreements, and forced to bear substantial additional risks, including the risk of further extension of the final maturity date," the document said.
The maturity date, according to the business plan, would extend the mortgage loan to September 2014.
Other aspects of the agreement, obtained by Guardian Business, included a payment of $10 million of outstanding principal to the senior participants and an increase of 25 basis points of the interest rate payable to the junior participants.
ORIX further alleged that since the dropped lawsuit in January, "there have been no efforts to market the property to obtain the highest and best value, or to provide a market check on the fairness of the proposed Brookfield transaction".
The company claimed that the most recent complete appraisal occurred in November 2011 by HVS Consulting and Valuation Services, which valued Kerzner's assets at more than $3 billion.
By exchanging $175 million of debt for the properties, ORIX argued Brookfield stood to "profit handsomely" despite the remaining mortgage debt.
This latest development comes despite Brookfield allegedly representing to lenders in January that it would "never again" pursue a "challenged transaction" whereby it becomes the 100 percent equity owners in the properties in exchange for the elimination of the principal amount owed.

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News date : 04/10/2012    Category : Business, Nassau Guardian Stories

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