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Thread: Cap Cana problems

  1. #101
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    They could give them years to come up with the cash to cover the covenants on the 250MM bonds... still won't happen.

    I ve been in this industry long enough to know that the most likely scenario is that JP Morgan in particular would rather auction off the debt for nickels on the dollar than have to add it to write offs (particularly in this climate), which they will have to do once fitch downgrades it to 'D' from it's current 'CCC'. This will happen when it fails to meet the bridge.

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    Or..........could it be they intend filing for something like a Chapter 11 bankruptcy so they will need to present a re-organisation plan acceptable to Courts and creditors so the 'bridge loan' is really debtor-in-possession financing?

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    Quote Originally Posted by ddalet View Post
    They could give them years to come up with the cash to cover the covenants on the 250MM bonds... still won't happen.

    I ve been in this industry long enough to know that the most likely scenario is that JP Morgan in particular would rather auction off the debt for nickels on the dollar than have to add it to write offs (particularly in this climate), which they will have to do once fitch downgrades it to 'D' from it's current 'CCC'. This will happen when it fails to meet the bridge.
    ddalet, help me understand something. If Morgan auctions it off for nickles on the dollar, would the $0.95 reduction not then become a write off for them anyway?

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    absolutely, any loss in the underlying value of the asset eventually leads to a write-off.

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    Quote Originally Posted by DR_Tolete View Post
    absolutely, any loss in the underlying value of the asset eventually leads to a write-off.
    No that's not how it works with rated bonds.

    The bank has covenants set by the federal regulators. They are forced to write down percentages of the face based on both internal reviews and independent ratings (such as fitch).

    For example, with the bonds rated triple C right now, they must write off say 30% of face at maturity on the balance sheet, but if and when it falls to D or junk status they will more than likely have to write off more than double that amount.

    This in turn puts pressure on the capitalization ratios that the bank must maintain to hold its own rating and qualify for the cheapest money available... this small transaction also gives you a glimpse of what the banking crisis originating in the US is all about.

    Point in case, when I used the term 'nickels' I meant more like 25 cents.. and I didn't want to use the old 'pennies' cliche.

    What this is all leading to is that these creditors have a personal interest not to write down the loan, but rather sell it even at deeply discounted losses. This is mainly because the net effect to the bottom line on the income statement would be the same but they would avoid the pressure on the cap ratios.

    I hope this clears up what I meant.

  7. #107
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    Quote Originally Posted by Lambada View Post
    Or..........could it be they intend filing for something like a Chapter 11 bankruptcy so they will need to present a re-organisation plan acceptable to Courts and creditors so the 'bridge loan' is really debtor-in-possession financing?
    This is possible, but not likely. The family running this place has pretty much proven their incompetence... if I were in charge of this debt, I would rather sell it and take my licks than reneg for a lower face and coupon hoping that the same screwup management was going to magically turn it around.

  8. #108
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    Quote Originally Posted by aross View Post
    ddalet, help me understand something. If Morgan auctions it off for nickles on the dollar, would the $0.95 reduction not then become a write off for them anyway?
    No. It would become a sale of an asset.

    Otherwise, they have to classify 80% (or more depending on the bond covenants) of the 250 MM as non performing, then they need to reserve against it... going back to my point of the cap ratios in my previous post.

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    Unhappy Cap Cana Article Toronto Star Nov 29/08

    Found this article yesterday in the Toronto Star. Apparently Cap Cana isn't the only development experiencing extreme problems. Here is the link to the story:

    TheStar.com | Business | Ghost resorts of the Caribbean

  10. #110
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    Steve seems to think that everything is on the rise, money is coming in, tourists are coming in and things are fine.
    I think he lives there and is not seeing the problems that are being reported. His take is the economy is doing well and will be unaffected.

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