UAE. Kerzner International Holdings Ltd., the company that built Atlantis resorts in the Bahamas and Dubai, has handed ownership of its flagship properties to creditor Brookfield Asset Management (BAM) and partner Dubai World in a debt restructuring.
Kerzner sold a 50% stake in Atlantis the Palm in Dubai to resort co-owner Istithmar World, a unit of Dubai World, for US$250 million, according to a statement.
Brookfield will forgive about US$175 million of junior debt for ownership of the Bahamas-based Atlantis Paradise Island, and the adjacent Bahamas One&Only Ocean Club. The transactions closed today.
The restructuring shrinks Kerzner to a resort management, development and branding company that will continue to run the seven One&Only resorts and Atlantis properties, known for Mayan- themed water slides and up-close encounters with dolphins and sharks.
Kerzner has struggled with debt since a US$3.6 billion leveraged buyout in 2006 led by founder Sol Kerzner took it private for US$3.6 billion. Owners include Istithmar, Goldman Sachs Group Inc. (GS)’s Whitehall Funds and Colony Capital LLC.
“With substantially less debt and a more flexible operating structure, Kerzner is well positioned for sustainable long-term growth as a global management company,” Kerzner, who is chairman, said in the statement.
Kerzner said it also reached a deal with lenders to restructure its operating debt, without providing details. Part of the proceeds of the Atlantis Dubai sale have been used to repay some debt, according to people familiar with the transactions who declined to be identified because the details aren’t public.
Brookfield’s loan to Kerzner was also secured by a 50% stake in One&Only Palmilla in Mexico. As part of the restructuring, Toronto-based Brookfield may take ownership of that stake, the people said.
Brookfield manages about US$150 billion and focuses on property, infrastructure, renewable power and private-equity investments. Istithmar is an investment unit of Dubai World, a Dubai government-owned group that holds assets including ports and islands.
Dubai World roiled global markets in 2009 when it announced plans to delay payments on about US$26 billion of debt. The emirate received a US$20 billion loan from the United Arab Emirates’ central bank, the Abu Dhabi government and its banks to survive the credit crisis and a real-estate crash.
Kerzner was advised on the restructuring by Blackstone Group LP (BX) and Kirkland & Ellis LLP.
Today’s Bahamas agreement salvages most of a November deal that Brookfield scrapped in January amid a legal challenge by hedge fund creditors Trilogy Portfolio Co. and Canyon Value Realization Fund LP.
Trilogy, of Greenwich, Connecticut, and real estate investor Canyon, sued Brookfield in Delaware Chancery Court in Wilmington on Jan. 4, alleging “brazen self-dealing” in the deal announced November 29, sending creditors back to the negotiating table.
Kerzner, 76, built what his company website calls the “mythical city of Atlantis” on Resorts International Bahamas property he bought from Merv Griffin, the late talk show host and game show creator.
The resort today includes a casino and is surrounded by an artificial open-air marine habitat featuring 50,000 sea creatures, water slides and a marina “rivaling the legendary marina of Monte Carlo,” according to the site.
A US$1 billion expansion begun in 2007 added hotels, a new dolphin habitat and expanded the Aquaventure water park.
In September 2008, as the financial crisis deepened, Kerzner opened a second Atlantis in the Persian Gulf on the outer frond of Palm Jumeirah, Dubai’s man-made, tree-shaped island. That development was built in partnership with Dubai World, which now owns the entire resort.
Kerzner also runs seven One&Only resorts in countries including South Africa and the Maldives, and the Mazagan Beach Resort near Casablanca in Morocco, with varied levels of property ownership. Today’s deals don’t affect those resorts.
The 2008 financial crisis eroded resort values and room rates, leaving Kerzner with too much debt as it continued to expand. Competition is also increasing in the Bahamas. About six miles from Atlantis, construction began last year on the US$3.4 billion Baha Mar casino resort.
Sarkis Izmirlian, whose family built More London in the U.K., is developing the property over 400 hectares (988 acres) of beachfront land, and will include hotels managed by Hyatt Hotels Corp. (H), Morgans Hotel Group and Rosewood Hotels & Resorts. Baha Mar is financed by the Export-Import Bank of China and is being built by China State Construction & Engineering.
Brookfield, which owns office properties including New York City’s World Financial Center towers, also took control of the Hard Rock Hotel & Casino in Las Vegas in a restructuring last year that converted its loan into equity.