Concern Over South Ocean Resort

Friday, 12 February 2010 00:00 News Editor
A government minister yesterday told Tribune Business he was "extremely" concerned about the protracted legal battle that has enveloped the South Ocean resort and inhibited its potential $867 million redevelopment, telling Tribune Business yesterday that it further exacerbated the Bahamas' "asset utilisation problem".

Vincent Vanderpool-Wallace, minister of tourism and aviation, said the ongoing litigation between the project's developer and financing partners, and the failed attempt by a Canadian pension fund to foreclose on the $85 million first mortgage it holds on the South Ocean property, only delayed the potential benefits Bahamians were likely to gain from employment and entrepreneurial spin-off opportunities.

"That's always a concern," Mr Vanderpool-Wallace told Tribune Business of the litigation in which the New South Ocean redevelopment is currently embroiled. "We're in the asset utilisation business, not the litigation of assets business."

Adding that it was not just himself who was "extremely" concerned about the legal quagmire at South Ocean, Mr Vanderpool-Wallace said the Government was more interested in "what can be done to get that [the redevelopment] moving along speedily", describing the resort as a potentially "magnificent property that adds value to New Providence and Nassau/Paradise Island".

"The Bahamas has an asset utilisation problem. When a magnificent asset like that one is not utilised, it's always a concern," Mr Vanderpool-Wallace said. "We would rather not see this [litigation process] happening, because it only delays the kind of benefits we would get from expenditure and employment."

Tribune Business understands that Mr Vanderpool-Wallace was briefed on the South Ocean situation by representatives of the Canadian Commercial Workers Industry Pension Plan (CCWIPP) earlier this week, the Bahamian Supreme Court having rejected its foreclosure bid last year in a ruling that sent shockwaves through the business community.

Justice Stephen Isaacs dismissed the foreclosure action brought by Propco, an investment vehicle owned by CCWIPP, on the grounds that the resort's immediate holding company, New South Ocean Development Company, did not have Central Bank of the Bahamas approval - as a foreign-owned entity - to repay its loan debt to Propco.

The foreclosure attempt, though, was opposed by the New South Ocean Development Company's financing partner, Connecticut-based hedge fund Plainfield Asset Management and its Seaside Heights investment vehicle, which holds the second mortgage/debenture over the southwest New Providence resort's real estate. That is understood to be for a sum in the "high" $50 millions range.

And it was Plainfield's attorney, Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, who successfully argued that CCWIPP was unable to place the resort into foreclosure because New South Ocean Development Company did not have a letter from the Central Bank giving it permission to repay the loan to Propco.

Under exchange control regulations, the judge found that CCWIPP/Propco and New South Ocean Development Company needed to have this Central Bank permission to repay the loan. Any loan arrangement in this nation that involves either a foreign-owned mortgagor or mortgagee requires Investments Board and Central Bank approval.

CCWIPP is now understood to be pursuing a dual track, filing an appeal against that verdict with the Court of Appeal and initiating a new foreclosure action in the Supreme Court.

Meanwhile, Plainfield has problems of its own, amid a US media storm surrounding its financial viability and reports of investigations into its affairs by the Manhattan district attorney and Connecticut state attorney-general.

Plainfield is engaged in an acrimonious battle with its South Ocean developer partner, Roger Stein and his RHS Ventures company, over ownership and control of the project. Now, the Supreme Court's ruling means that the entity in which they both have an ownership stake is back in charge of the Bahamian resort.

In documents filed with the New York Supreme Court, Mr Stein and RHS Ventures had alleged that Plainfield was attempting to use its position as financing partner to squeeze them out.

The New South Ocean Development Company is controlled by a Cayman-based partnership, which is owned 51 per cent by Plainfield's Seaside Heights, giving it majority control, 1 per cent by RHS Ventures and 48 per cent by one of the latter's affiliates, RHS Holdings.

Yet Mr Stein was alleging that through designing its financing participation in the South Ocean project with loans, rather than equity, Plainfield had positioned itself as New South Ocean Development Company's lead creditor - and could squeeze him out at any time by calling in those loans.

Mr Stein's court and arbitration filings alleged that he had financed his participation with 100 per cent equity, playing $7.56 million for land acquisitions and other pre-development costs. Plainfield, on the other hand, through Seaside Heights had lent $75 million and injected a further $42.7 million as equity, taking its total participation to almost $100 million.

In return, Plainfield has alleged that RHS Ventures did not properly use the financing it advanced for the South Ocean project, and failed to provide it with audited financial information.

The dispute is now before the American Arbitration Association, but whatever the verdict it appears that South Ocean could be tied up in legal knots for some time.

The South Ocean redevelopment was originally scheduled to include a 140-room five-star resort; 400-room four-star resort; a 40,000 square foot casino; fractional villas; 180 timeshare units; second homes; a convention centre; marina; tennis facilities and spa.

The draft economic impact study for the South Ocean project projected that it would create 1,358 full-time jobs when fully open, plus 1,200 construction jobs.

Source: The Tribune