By Henny Sender in Hong Kong
Paulson & Co, the US hedge fund, has won a US court battle with the Government of Singapore Investment Corp over control of a group of luxury hotels that brings it closer to making potential windfall profits.
The Singapore sovereign wealth fund has been trying to wrest control of the hotels – originally part of the holdings of troubled Morgan Stanley real estate funds – from a group led by affiliates of Paulson & Co since early this year.
The Paulson group gained control of the properties with the approval of a New York bankruptcy court after Morgan Stanley was unable to pay back loans it took from a variety of lenders including the Paulson group and GIC.
In a little noticed judgment at the end of June, the court extended for another four months the Paulson group’s exclusive rights to file a bankruptcy plan.
GIC had argued that the Paulson group would manipulate the bankruptcy process for its own gain. According to court documents, GIC said the Paulson group was delaying resolution to enable it to “bet on a significant upswing in the commercial real estate market”.
The Paulson group gained control of the hotels this year in exchange for eliminating $600m of junior debt, after foreclosing on a $200m loan to the Morgan Stanley fund. The five hotels, which include the Grand Wailea in Hawaii, the Arizona Biltmore, La Quinta and the Claremont Resort & Spa in California, and Doral Resort & Spa in Miami – have a combined $2.2bn in consolidated assets and $1.5bn of secured debt.
In recent months, US hotel values have been steadily increasing. The US hotel industry reported increases in all three key performance metrics for the second quarter, including occupancy, room rates and revenue each available room, according to Smith Travel Research. The strongest gains were in the markets where the disputed hotels are located.
If disappointing economic growth does not derail the current upswing in property prices, the Paulson group stands to make large profits. While it remains unclear how much it paid for its position in the debt, the calculation is that the hotels are worth far more than the value of the secured debt, which is about the value of the GIC offer of “at least $1.475bn”.
“Paulson and his group stand to make windfall profits,” says one lawyer familiar with the case.
Once the hotels are sold and creditors are paid off, any remaining value would accrue to the Paulson group, an amount which could be as much as hundreds of millions of dollars.
A big win over the Morgan Stanley real estate fund would be particularly welcome for John Paulson, who runs Paulson & Co. Famous for making billions of dollars by betting against the housing bubble in 2007 and 2008, he has been struggling lately. For the first half of this year, many of his funds have been down significantly, and in the second quarter of the year, every single one of his funds lost money, according to his most recent investor letter.
One person familiar with the case suggested that GIC’s valuation of the assets was too low, saying, “Why wipe out any potential equity value if the fundamentals are improving?”
Whatever the eventual outcome, the decision of a sovereign wealth fund to take on a hedge fund in court – particularly a bare-knuckle bankruptcy court – is very rare. GIC and Paulson both declined to comment.
Sovereign wealth funds are usually passive investors who prefer to stay out of the limelight. Indeed, most investment agreements between sovereign funds and their targets are confidential and pledge the two sides to enter confidential arbitration in the event of a dispute. In the past, there have only been a few times when sovereign funds sought legal redress, such as in 2009 when ADIA filed an arbitration claim against Citigroup over the investment it had made in the ailing bank in 2007. That case remains unresolved.
Source: http://www.ft.com
Paulson & Co, the US hedge fund, has won a US court battle with the Government of Singapore Investment Corp over control of a group of luxury hotels that brings it closer to making potential windfall profits.
The Singapore sovereign wealth fund has been trying to wrest control of the hotels – originally part of the holdings of troubled Morgan Stanley real estate funds – from a group led by affiliates of Paulson & Co since early this year.
The Paulson group gained control of the properties with the approval of a New York bankruptcy court after Morgan Stanley was unable to pay back loans it took from a variety of lenders including the Paulson group and GIC.
In a little noticed judgment at the end of June, the court extended for another four months the Paulson group’s exclusive rights to file a bankruptcy plan.
GIC had argued that the Paulson group would manipulate the bankruptcy process for its own gain. According to court documents, GIC said the Paulson group was delaying resolution to enable it to “bet on a significant upswing in the commercial real estate market”.
The Paulson group gained control of the hotels this year in exchange for eliminating $600m of junior debt, after foreclosing on a $200m loan to the Morgan Stanley fund. The five hotels, which include the Grand Wailea in Hawaii, the Arizona Biltmore, La Quinta and the Claremont Resort & Spa in California, and Doral Resort & Spa in Miami – have a combined $2.2bn in consolidated assets and $1.5bn of secured debt.
In recent months, US hotel values have been steadily increasing. The US hotel industry reported increases in all three key performance metrics for the second quarter, including occupancy, room rates and revenue each available room, according to Smith Travel Research. The strongest gains were in the markets where the disputed hotels are located.
If disappointing economic growth does not derail the current upswing in property prices, the Paulson group stands to make large profits. While it remains unclear how much it paid for its position in the debt, the calculation is that the hotels are worth far more than the value of the secured debt, which is about the value of the GIC offer of “at least $1.475bn”.
“Paulson and his group stand to make windfall profits,” says one lawyer familiar with the case.
Once the hotels are sold and creditors are paid off, any remaining value would accrue to the Paulson group, an amount which could be as much as hundreds of millions of dollars.
A big win over the Morgan Stanley real estate fund would be particularly welcome for John Paulson, who runs Paulson & Co. Famous for making billions of dollars by betting against the housing bubble in 2007 and 2008, he has been struggling lately. For the first half of this year, many of his funds have been down significantly, and in the second quarter of the year, every single one of his funds lost money, according to his most recent investor letter.
One person familiar with the case suggested that GIC’s valuation of the assets was too low, saying, “Why wipe out any potential equity value if the fundamentals are improving?”
Whatever the eventual outcome, the decision of a sovereign wealth fund to take on a hedge fund in court – particularly a bare-knuckle bankruptcy court – is very rare. GIC and Paulson both declined to comment.
Sovereign wealth funds are usually passive investors who prefer to stay out of the limelight. Indeed, most investment agreements between sovereign funds and their targets are confidential and pledge the two sides to enter confidential arbitration in the event of a dispute. In the past, there have only been a few times when sovereign funds sought legal redress, such as in 2009 when ADIA filed an arbitration claim against Citigroup over the investment it had made in the ailing bank in 2007. That case remains unresolved.
Source: http://www.ft.com
No comments:
Post a Comment