The Tribune

By NEIL HARTNELL

Tribune Business Editor

PRIVATE sector leaders have hailed the Government's achievement in getting the new Atlantis and One & Only Ocean Club owners to commit to maintaining a minimum 8,000 employee level on Paradise Island as "exceptional", adding that this and other assurances seemed to be "a win-win for all concerned" in the short-term at least.

Winston Rolle, the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chief executive, told Tribune Business that despite the 'jockeying for position' among Kerzner International's lenders and the various lawsuits that were filed in Delaware, he believed a revised 'debt-for-equity' swap was always the likely solution to the company's $2.5 billion debt struggles.

Emphasising that jobs at the Atlantis and One & Only Ocean Club resorts were they key issue for the Bahamas and its economy, Mr Rolle praised the Ingraham administration for getting a commitment from the new owner, Toronto-based Brookfield Asset Management, to maintain minimum employee levels in line with current staffing.

"This would be the key thing from a country perspective. We should all be concerned about that, and if they've got that as a contractual arrangement, especially with keeping employees engaged, that's exceptional," Mr Rolle told Tribune Business. "It's a very good sign from the employee and country perspective that persons are still engaged."

His assessment was backed by that of James Smith, minister of state for finance in the 2002-2007 government, who said it was comforting to know that the Ingraham administration had been actively involved in the debt restructuring process.

"I'm happy that they didn't stand on the sidelines with such an important and valuable property and, at least by setting out such parameters, we have some assurances that, going forward, the resorts will continue to operate at the same standard and in the same market. It's a win-win for all concerned," Mr Smith told Tribune Business.

The other commitments obtained from Brookfield were to keep capital expenditure at Atlantis to a minimum $50 million annual level, in line with recent averages, and to do the same with brand marketing spend. In truth, it was probably not too hard for the Government to get these, since it is in Brookfield's interest to keep the Paradise Island properties operating at a high level, at to do this it will need both employees and regular capital injections.

Meanwhile, Mr Rolle suggested that, on the face of it, not much would change on Paradise Island in the short-term. "When we look at Kerzner having management control, I would presume that for that to be successful, Kerzner would have to assume responsibility for a lot of things it does now, running daily operations and the whole marketing aspect of it," he said.

"Technically, they've moved the debt from one entity to the next, like moving a mortgage from one bank to the next, so it does not change anything significantly."

Acknowledging that Brookfield, as an asset manager, was not in the hospitality business itself, the BCCEC chief executive said: "However, we also have to appreciate that from a business perspective, it's in their best interests that the properties keep functioning and the debt keeps getting paid.

"Once the debt gets paid, they now have a very profitable business that they can look forward to divesting or developing, and taking it from there."

Suggesting that the situation might eventually attract a major resort owner to buy the Paradise Island properties, Mr Rolle noted that the 15-year Ocean Club management contract given to Kerzner International was relatively long-term.

"That gives them a lot of leeway to go ahead and do a lot of things they want to do, and they can continue to develop and run the property," he added.

Noting that the two Paradise Island resorts remained key features of the Bahamian tourism product and marketing strategy, Mr Rolle added of the $2.5 billion debt restructuring agreement: "The questions and uncertainties surrounding the properties have, for the most part, subsided, and they can get on with business as usual."

Mr Smith said the main lessons from Kerzner International's debt woes lay not in the Bahamas or the resorts themselves, but the global meltdown. Kerzner International took on its debt load when Sir Sol and his late son, Butch, together with a group of private equity investors, paid $3.5 billion to buy the company back and go private be de-listing from the New York Stock Exchange (NYSE).

The debt was also used to finance the $1 billion Phase III expansion on Paradise Island and expand the Atlantis brand worldwide in Dubai, but Mr Smith pointed out that the deal was done when "money was flowing easily" and there were numerous private equity funds and hedge funds willing to snap it up.

"The market collapsed and everyone has to pay the piper," Mr Smith said. He added of Brookfield: "We know their core business isn't operating hotels, and to the extent they want to keep Kerzner around in the medium-term at Atlantis for three-six years, it will be business as usual."

He noted, though, that the Atlantis management agreement's minimum three-year term was for "around the time the Baha Mar project is coming on stream, and that definitely will change the ball game".

Indicating that the players involved may then seek to exit their ownership in Atlantis and the One & Only Ocean Club, Mr Smith said that from a Bahamas perspective: "This thing has to be kept under constant review. There aren't too many buyers out there to take on that property knowing Baha Mar is coming online."

The key, he added, was for the Bahamas to generate enough airlift and stopover visitors, from new and existing markets, to keep both Cable Beach and Paradise Island supplied with enough visitors to make them successful.

"The solution for the Bahamas is to try and increase the airlift into the Bahamas, and find new or expand existing markets to increase stopover visitors. Then both of them can co-exist."