Yesterday, the Bermuda Government commenced legal proceedings intended to place the assets at Caroline Bay under the control of Provisional Liquidators. The Developers acknowledged in February 2018 that they were unable to pay their debts. While the Government has done everything prudently possible to support efforts to refinance the project, to date the Developers have failed to provide an acceptable way forward.
Two years have elapsed since the Developers’ notification of their inability to pay their debts, and we have diligently reviewed each proposal they have put forward. Without exception, each proposal would have put the Bermuda Government in a far worse position than it is in today. We have always been of the view that new borrowing, in priority to our existing claims, and based on speculative plans, would likely mean further default. The new lenders would have recourse to the assets we seek to claim today, which would leave the people of Bermuda with nothing. We saw this as the greatest risk to the project and an outcome we could not tolerate.
In addition, each of the various proposals has been based on the Bermuda Government retaining its $165mm Guarantee or increasing it to $185mm. They are also based on the payment of transaction fees to the Developers or parties related to them in the range of $12.5mm to $17.5mm, and repayment of loans or interest payments on loans to other lenders who were not part of the Bermuda Government guarantee. Our responsibility is to the people of Bermuda, and we deemed each of those proposals wholly unacceptable.
Proceedings yesterday saw the appointment of senior members of Ernst and Young (Bermuda) as Joint Provisional Liquidators (“JPL’s”) who will take control of the various project companies, representing the collateral behind the original project loans and Bermuda Government guarantees. JPL’s are independent and accountable to the Court. It is their responsibility to review the financial condition of the project companies, to determine where additional liability may rest, and to gain as much value as is possible to satisfy the Bermuda Government’s claims. As has been expressed previously, the Government intends to protect the interests of the people of Bermuda to the fullest extent permissible under the law.
The Bermuda Government is retaining the services of global firm Alvarez & Marsal who are expert restructuring advisors. They have significant experience in projects such as this one where developers are unable to pay their debts and have partially constructed buildings in support of lenders’ claims. We have asked them to work with our advisory team to prepare options for the various existing buildings and the wider project, including an emergency remediation plan to protect what has already been invested. In due course, this could extend to a design/construction plan, which would allow us to complete the buildings and have them in working order, should we deem that the most suitable way forward.
Funding for this stage of the project is being financed within the existing $200 million credit facility provided by Butterfield Bank and HSBC Bank Bermuda, and it should be noted that direct Bermuda Government borrowing will be limited to that amount.
Any future borrowing would have to be done through a new special purpose vehicle backed by the assets of the project itself. This leaves open the option that the Bermuda Government may have additional investors or co-investors if deemed appropriate.
The intention is to ensure that the people of Bermuda get the greatest return on the funds that have been expended on this project thus far.
We are disappointed that the Developers failed in what was the largest Bermuda Government-backed hospitality project, and notwithstanding the two years since notification of their inability to pay debts, were unable to provide any viable way forward. We recognize, however, that our primary responsibility at this stage is to address the Bermuda Government’s financial exposure by seeking to place control of the assets with the Provisional Liquidators through the Courts. We hope to find a sensible way to potentially finance and complete what is already partially built, and then to seek the best option for return of funds expended.
This could and should have been avoided. Governments should not take on the majority of the financial risk for a project and leave the execution, operations and financial upside to a counterparty. The people of Bermuda should never be exposed to that kind of deal.
The public can be assured that we are committed to doing everything possible to bring this matter to a sensible conclusion, and we will remain fully engaged in this project until this objective is met.