Caroline Bay payout bill likely to grow
The Government’s payout over the gridlocked Morgan’s Point development will go several million dollars beyond the $165 million government guarantee now being called in by lenders.
Curtis Dickinson, the Minister of Finance, revealed yesterday that construction firms left unpaid after financing for the project dried up would be compensated. The guarantee made by the former administration forced Parliament on Friday to raise the island’s debt ceiling by $250 million, up to $2.75 billion, while a $200 million credit facility was negotiated with local banks.
Part of that will enable the Government to obtain advice and restart the stalled development at the former US Navy base, where a hotel and condo development stands uncompleted.
The payment to lenders, which is due this week, comes with extra fees, pushing it “close to $170 million”, Mr Dickinson said.
The American-based lenders are due $85 million, with about $3 million in prepayment penalties, because the loans are being paid before their maturity.
Lenders Arch and Axis reinsurance are due $75 million of principal plus a $5 million payment, guaranteed in the documents, to cover unpaid interest.
“We expect to close on the transactions shortly and we will make a formal announcement once this is done,” Mr Dickinson said.
“This process involves lawyers for the Government, for lenders, and there are agreements that need to be executed.
The finance minister explained: “There is also financing with the local banks; there are credit facilities that need to be negotiated, which, by and large, have been done.
Mr Dickinson added: “We’ve gone as far as having signed signature pages; we’re well on our way.”
The Government effectively trades places with the backers becoming the lender — meaning ownership of Morgan’s Point and its stalled resort remains unchanged.
Nor will these steps guarantee a resumption of work at Morgan’s Point.
Mr Dickinson confirmed: “Unfortunately, it doesn’t. The fundamental issues with the project remain. They need financing.”
He added: “The lenders’ money and equity has been used in support of the work that’s been done. Those funds were not sufficient to complete the project.”
Contractors at the development, now called Caroline Bay, were banding together over the summer to sue the developers at Morgan’s Point, with some estimating that about 25 firms were collectively owed as much at $10 million.
Mr Dickinson said the Government would begin evaluating claims, but declined to commit to a timeline.
“It’s not going to happen tomorrow and may not happen next week,” he said. “We have to set up the process and evaluate claims and then make payments.
“When we’re in a position to communicate how that will work, we will do that.”
The minister dismissed speculation that he had upped Bermuda’s debt ceiling to fund the Government’s current Budget.
He said: “That is completely untrue. In fact, we will be releasing, in the coming days, the first quarter of the 2019-20 fiscal year performance numbers.
“We are on budget, and tracking as we thought. We have borrowed no additional monies to fund Government.
“It is working capital. We have not increased debt. Things are moving as we had planned.”
Bob Richards, the former finance minister under the One Bermuda Alliance government that made the guarantee, defended the decision on Friday, and criticised the Progressive Labour Party for failing to put funds aside years earlier, when the project’s troubles became apparent.
Mr Dickinson responded yesterday that he was “confounded by that — I don’t see particular logic in it”.
Saying he wished to avoid “a rhetorical back and forth with former minister Richards”, whom Mr Dickinson said he admired, the minister added: “I notice he did not offer suggestions of things that could have been saved on.
“I have a hard time thinking that I could sell the notion to the Bermuda population that I would cut things that are important, like funding for education, for works and engineering or police, in order to, in effect, bail out the Morgan’s Point development.
“What we decided instead is to accept the responsibility that came with the guarantees, and to put in place an appropriate financing strategy that ring-fenced the obligations of the Government.”
With the sums owed to local contractors still unknown, Mr Dickinson said the $200 million loan was “an educated guess”, that had proved fair to local banks.
“Just because we have a $200 million credit facility doesn’t mean we are going to use it all,” he said.
“With respect to the debt ceiling raise, $250 million was the number I chose.
“Again, there will be a need for hiring advisers and working through a process, to figure out how we get this development back on its feet. Those activities don’t happen for free.”
The numbers were set to provide “a bit of a buffer”, Mr Dickinson said.
The legislation brought before MPs on Friday took immediate statutory effect under section 2(1) of the Provisional Collection of Revenue Act, 1975.
In a statement that day, Craig Cannonier, the Leader of the Opposition, queried what had come of the “billionaires” said to be in talks with the developers.
Mr Dickinson acknowledged that the developers had spoken with both the Government and Opposition on their efforts to revive financing.
He added: “The Government has been supportive, but, to date, those discussions have not yielded financing for the project.”
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