Cap Cana fights the clock

A report from J.P. Morgan and an article in Latin Finance on 19 November, evaluate the possibilities of Cap Cana to overcome the current crisis. 

On Wednesday the payment on a bridge loan from Deutsche Bank and Morgan Stanley taken out a year ago came due. 

A few weeks ago, Cap Cana had to dip into its reserve fund to pay November’s quota on the US$250 million bond issue that comes due in 2013. 

As things go, the company has until the end of the year to replace the fund or risk going into default on the notes. 

The ratings of the company have been downgraded by both Moody’s and Fitch, to a Ca and a CCC rating respectively, and they remain on a watch list for more downgrades, essentially a D. 

The Cap Cana bonds are sold with a note of high risk of default, selling at high discount rates. 

The company is negotiating with its creditors that include a group of five funds and a mutual fund. 

People close to the process say that Cap Cana initially offered to fix the debt with a high discount, but this was rejected by the creditors. The creditors say that the owners of Cap Cana, the Hazoury family, have sufficient money from the sale of the airport concessions to face their immediate debts. 

It is expected that an agreement will be reached because all arties have a lot to gain by avoiding a default. 

For their part, the people that hold the 2006 bond emission of US$250 million are organizing in anticipation of a potential bankruptcy. 

According to rumors, executives of J.P. Morgan are trying to organize the bond holders. The firm contracted several executives of Bear Stearns and Lehman Brothers, bankers that have worked with the project in the past. 

The bonds are backed by a first mortgage on the land and on the income from sales of the property. The bonds are currently being negotiated at 20 cents on the dollar, which reflects the doubts the market has on the ability of Cap Cana to pay their obligations. 

Nonetheless, the Cap Cana consultants in New York City, the Weston Group, accused J. P. Morgan of trying to influence the negotiations. “JP Morgan is trying to push Cap Cana into some type of deal”, said John Liegey, the president of Weston Financial Group. The executive alleges that Morgan is using inside information obtained from their previous relations with the company. JP Morgan declined to comment on the accusations. 

The problems at Cap Cana are not limited to the economic area. The company is also facing several lawsuits in the New York courts that are creating a bad atmosphere among investors. 

There are claims from the Praxi firm and some property owners that have resulted in bad press affecting the image of the company. 

Diario Libre