Lucayan repair bill 'significantly lower' at $35m

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government's $35m Grand Lucayan repair bill is "significantly less" than initially feared, Tribune Business can reveal.

Preliminary engineering estimates, conducted last week, found that roof repairs were the biggest issue for Freeport's sole mega resort property, which is now under government management through the Lucayan Renewal Holdings special purpose vehicle (SPV).

Well-placed sources, speaking on condition of anonymity, told Tribune Business that the estimated repair bill was split relatively evenly between the Grand Lucayan's three properties.

The civil, mechanical and electrical engineering report suggested $13.5m worth of work was required at both the Lighthouse Pointe, the only one still open, and the former Memories resort. Breaker's Cay, which was thought to be the section requiring most attention, was found to only need $8m in repairs and upgrades.

Michael Scott, Lucayan Renewal Holdings chairman, declined to comment on the report and its findings when contacted by Tribune Business last night. However, multiple well-placed sources, speaking to this newspaper on condition of anonymity, confirmed both the total $35m figure and numbers for each of the properties.

"They had a study done last week, which showed it would only take $35m to fix it," one contact confirmed. "They're saying the mold issue is not a big one. The main issue is the roofs. They've got to be replaced, and in the Memories section you've got plumbing and electrical problems. It's not as bad as everyone thought."

Paul Wynn, chief executive of the Toronto-based Wynn Group, which was the last potential buyer to pull out of talks to acquire the Grand Lucayan, had told Tribune Business that between $45-$55m was needed to renovate and remediate the resort's problems.

He had unsuccessfully sought to renegotiate the $65m purchase price with outgoing owner, Hutchison Whampoa, down to $40m to free-up financing for repairs and rebuilding marketing/airlift support.

The buildings will need substantial remediation," Mr Wynn had told Tribune Business. "Our budget, done with AMR and before that with Sunwing, was $45-$55m." He explained that the variance was for mold remediation, given that a new owner would only have been able to fully assess this situation once an acquisition was completed.

"We're not even certain that the Lighthouse Point should stay up," he added. "The 23 villas that face the water, they have to be demolished. You open the doors and the mushrooms are coming out the walls; it's that bad."

The much-reduced $35m estimate will be a relief to the Minnis administration, which has come under fire for committing taxpayer funds to the purchase of a resort that many fear will become a major drain on the Public Treasury if a buyer is not found quickly.

While the Government will likely seek to sell the Grand Lucayan without undertaking major capital upgrades, in a bid to minimise the taxpayer's exposure, it could be forced into taking such action if the search for a new owner drags on beyond six months.

Meanwhile, Tribune Business was told that the seeming eagerness of many Grand Lucayan staff to accept voluntary separation packages and leave the resort was not an unwelcome development where the Government and Lucayan Renewal Holdings were concerned.

Several sources told this newspaper that the property was "100 percent over-staffed", carrying double the number of employees needed to operate the 196-room Lighthouse Pointe.

"They've got too much staff; probably 100 percent more staff than they need for 196 rooms," one contact said. Some 423 employees remain at the Grand Lucayan, but the two unions that represent its workers - the Bahamas Hotel Managerial Association (BHMA) representing middle managers, and the Commonwealth Union of Hotel Services and Allied Workers for line staff - have both indicated that a "substantial" number of members would be willing to leave if the terms are right.

Obie Ferguson, president of the Trades Union Congress (TUC), and who represents the BHMA, told this newspaper on Wednesday: "Some of the staff are asking for severance pay; quite a lot. The feedback I've received is that it's a substantial number. I believe most of the workers would take a package.

"That's my general view, but we're trying to get the exact number. I put out a questionnaire to the BHMA because we want to be in a position to say to the chairman [Mr Scott] how many persons are mindful to go that route. "We will know the exact number in a day or so, but as it stands a sizeable number want to take severance pay."

One source, speaking on condition of anonymity, said the Grand Lucayan's staff structure and costs had been skewed by Hutchison Whampoa's policy of retaining middle managers - and letting line staff go - whenever downsizings occurred.

"They'd welcome more money if those middle managers took the package," they added of Lucayan Renewal Holdings, revealing that the SPV and its Board were still seeking high-level management executives to run the resort on their behalf.

A formal sales prospectus, which will inform potential Grand Lucayan buyers on the resort's financial performance, physical condition and other material business information, was said to still be at least a fortnight away from being ready for release.

"To sell a hotel in a dead tourism market is almost impossible," one contact told Tribune Business. "The buyer of a hotel, the first thing they ask you for is comparable room rates. They'll kill you in this town if you can find them.

"They really need a professional sales prospectus so that buyers coming in know what the hell they're going to get. They've had three or four different groups make offers, but they don't know if they have the money or not, or whether they're good or bad."

Closing of the Government's $65m Grand Lucayan purchase has been "slightly delayed" to September 21 because the necessary resolution authorising the Government guarantee that will underwrite the acquisition financing can only be effected when Parliament resumes two days prior following the summer recess.

The guarantee will be worthless without the resolution, since this is required to bring it into compliance with the law in the form of the Financial Administration and Audit Act.

The Minnis administration is thought to be financing the Grand Lucayan purchase with a combination of debt and the $25m allocated in the 2018-2019 Budget to support the now-abandoned Wynn Group purchase.

The deal is structured so that the Government pays a $10m deposit, which it has done, and a further $20m upon closing. This is likely to be financed largely through the Budget, with the $35m balance split into semi-annual $5m payments spread over three-and-a-half years.

That portion will come from debt, with the funds likely to be extended by the Grand Lucayan's departing owner, Hutchison Whampoa, as a form of vendor financing. This was proposed a year earlier, when the Minnis administration first suggested it would take an equity stake in a purchase of the resort.

A mortgage, secured on the Grand Lucayan's real estate assets, will provide security for the loan or any form of debt financing. The Government guarantee is needed to provide assurance to the lender that its monies will be repaid.