(Updates with Five Mile appealing ruling in fifth
paragraph.)
By Joseph Checkler
A bankruptcy judge confirmed the $1.5 billion sale of a resort
group controlled by hedge fund manager John Paulson to the
government of Singapore.
In an opinion filed Friday with U.S. Bankruptcy Court in
Manhattan, Judge Sean H. Lane overruled the objections of the
Internal Revenue Service and Five Mile Capital Partners, a lender
to the resorts and longtime adversary in the case. Five Mile, which
made a $50 million mezzanine loan to the resorts, is set to recover
nothing when creditors are paid with the proceeds from the
sale.
Five Mile had argued at a hearing this month that the deal with
GIC RE, the real estate investment arm of Singapore's sovereign
wealth fund, created a $331 million tax liability not disclosed
properly to creditors or the court.
But Judge Lane overruled Five Mile's objections and said his
approval of the sale doesn't stop the IRS from going after the tax
money.
Five Mile appealed Judge Lane's confirmation of the sale in a
Monday afternoon filing.
In December, no one bid against Singapore at a scheduled auction
of the resort group's properties: Maui's Grand Wailea Resort Hotel
& Spa, the La Quinta Resort & Club in La Quinta, Calif.;
the Arizona Biltmore in Phoenix; and the Claremont in Berkeley,
Calif. Five Mile has been appealing the sale, saying it wasn't done
in good faith because GIC made a pre-sale deal with investment firm
KSL Capital Partners LLC to discourage KSL from bidding. Judge Lane
reiterated in his written opinion that he thought the sale was done
in good faith.
The $1.5 billion deal includes a $1.1 billion cash payment for
the properties and $360 million in debt forgiveness. The resort
owner will pay 100% of the claims of Hilton Worldwide and Marriott
International Inc. (MAR), which have managed several of the
resorts. The owners of some of the resorts' so-called mezzanine
debt will get 100% of their money back, while another tier of those
lenders will get between 8% and 68%. Five Mile stands to get
nothing for its junior mezzanine loan.
The deal also includes the Great White Course, a Greg
Norman-designed golf course adjacent to the Doral Golf Resort &
Spa in Miami. A company controlled by Donald Trump in June bought
the Doral from Paulson for $150 million.
The resorts' trip through bankruptcy began in February 2011,
when Paulson teamed with Michael Ashner's Winthrop Realty Trust
(FUR) to seize the properties through a foreclosure proceeding.
Days later, the group put the resorts into Chapter 11 to avoid
paying more than $1.5 billion in senior debt.
Since the filing, the company has made several structural
changes, reshaping contracts with property managers Hilton and
Marriott, before preparing its resorts for the sale so it can repay
creditors.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
-Write to Joseph Checkler at joseph.checkler@dowjones.com
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