Kerzner faces April debt test
As early as next month Kerzner International Holdings Ltd. could face a loan covenant test on a$450 million debt, with failure possibly resulting in a default event, Bloomberg reported on Friday.
The company, which owns the Atlantis Paradise Island Resort, has already engaged a team of advisors to help restructure$3 billion in debt that comes due this year, including advisors Kirkland&Ellis LLP, Goldman Sachs Group Inc., and Blackstone Group LP, according to media reports. George Markantonis, president and managing director of Kerzner International Bahamas Ltd., in a statement Friday said that discussions with lenders were constructive.
“This process will be seamless for our employees, our guests and the communities in which we operate. Our operations remain very strong, and the company has ample liquidity to continue to invest in our properties and our people,”read Markantonis’statement.
The details of the upcoming covenant test on the$450 million debt have not been made public. In early February, the New York Times reported the amount of the’so-called operating company debt’to be about$400 million. Media reports say that the debt is backed by management contracts and equity in some properties, including the Atlantis Resort in Dubai.
Regardless as to which Bahamian interests are bundled in the covenants surrounding the operating company debt, if a default was to occur it would likely have serious implications for The Bahamas–Atlantis remains the nation’s second largest employer after the government. Bloomberg reports that a refinancing of the company’s debt, asset sales, and a change of ownership could be in the cards if the test is failed.
In a press conference on Friday, Prime Minister Hubert Ingraham said that the government is watching the situation closely.
“We’ve had a number of discussions with Mr. Kerzner, we continue to have discussions with him. If there is anything we think is especially concerning to make comments on we will do so. At the moment we don’t think there is a need for us to make any comment,”Ingraham said.
Guardian Businesscontacted TPG Capital Partners, one of the two largest holders of the$400-$450 million debt, along with Centerbridge Capital Partners LP, for information about the nature of the upcoming covenant test, its timing and what remedies were available if failed. The firm’s spokesperson remained tightlipped on the details, offering no comment at the time.
An offer by BMB Group was made to acquire Kerzner in October last year. BMB Group, reported to represent wealthy Malaysian investors including members of Brunei’s royal family, offered to pay$3.4 to$4 billion for the company, but it was not interested in selling at the time.
On Paradise Island, expansion plans continue. The Atlantis is developing a 650-seat”Virgil’s Barbecue”, expected to generate an additional 300 jobs at the resort, with a November opening targeted. Late last year Atlantis added another 90 jobs when it opened”Crush”, its high-tech teenage club, and a new Starbucks coffee shop.
Plans for room expansion, however, are on hold, with no additional rooms expected for 2011/12, Markantonis toldThe Guardianin January. He also said at the time that the resort is hoping to see occupancy levels up to the high 60%or low 70%range–last year had averaged in the low 60 percent range, he said.
Kerzner went private in 2006 at a cost o$3.6 billion, and its new owners include the company’s founder and namesake Sol Kerzner, Dubai World’s Istithmar, Goldman Sachs Group Inc.’s Whitehall Funds and Colony Capital LLC, according to Bloomberg.