Published On:Friday, November 20, 2009

By NEIL HARTNELL

Tribune Business Editor

THE six-month receivership for the disputed $867 million South Ocean redevelopment was discharged by the Supreme Court earlier this week, Tribune Business can exclusively reveal, after a judge dismissed an attempt by one of the property's investors to place it in foreclosure.

Justice Stephen Isaacs dismissed the foreclosure action brought by Propco, an investment vehicle owned by the Canadian Commercial Workers Industry Pension Plan (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.

Multiple sources with knowledge of the matter confirmed events in the Supreme Court earlier this week, after CCWIPP - through Propco - attempted to foreclose on the $85 million first mortgage/debenture it holds on the 375-acre South Ocean property.

CCWIPP's 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.

Sources told Tribune Business that while Propco had received Central Bank permission to make the loan, and New South Ocean Development Company had been authorised to execute a promissory note for the loan's repayment, the third piece of documentation was lacking.

It is understood that Propco's attorney, PLP MP and former Cabinet minister, Alfred Sears, argued that permission for New South Ocean Development Company to repay, and for Propco to receive the payments, was contained in the existing documentation, but Justice Isaacs disagreed.

In dismissing the foreclosure action, Justice Isaacs also discharged South Ocean's receiver, Anthony Kikivarakis, the Deloitte & Touche (Bahamas) partner, who took control of the resort in May 2009.

The Supreme Court ruling also creates further uncertainty over South Ocean's future, especially in the short-term, as it hands control back to New South Ocean Development Company, whose investors are locked in an intense arbitration battle currently under way this week in New York.

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.

Informed observers believe Plainfield opposed the foreclosure, and is seeking control, because it wants to hang on to South Ocean until the credit and real estate markets improve. That, in turn, would improve the property's value, and the hedge fund would likely then seek a new development partner or sell the resort.

Mr Stein and Plainfield are understood to have 'locked horns' in the hearing forum provided by the American Arbitration Association this week, and with both parties understood to be reluctant to finance the project until their dispute is settled, South Ocean's short-term future looks bleak.

Propco is understood to have been paying staffing costs, and financing the property's upkeep, infrastructure and utilities while the battle rages, but this week's ruling likely puts a stop to that. Effectively, South Ocean's redevelopment has been placed even further on to the back burner, with the resort firmly mired in 'limbo'.

Some sources suggested that this week's ruling could cause problems for all lending arrangements in this nation involving non-Bahamian residents or entities, as they would now be required to get Central Bank permission every time they had to re-pay or receive loan monies. That, though, could not be confirmed.

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.