CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the senior secured notes issued by Newland International Properties, Corp. (Newland), a Panamanian company established to develop the Trump Ocean Club (TOC) luxury hotel and condominium, as follows:
--$257.6 million senior secured notes due July 2017 to 'Csf'/ RE50% from 'CCsf'/RE60%.
The $257.6 million senior secured notes due 2017 replaced the defaulted $220 million senior secured notes due November 2014 on July 3, 2013. Fitch's rating addresses timely payment of principal and interest on a semiannual basis.
Fitch assigns Recovery Estimates (RE) to all classes rated 'CCCsf' or below. REs are forward-looking, taking into account Fitch's expectations for principal repayments on a distressed structured finance security. For the senior secured class notes, the agency revised the RE to RE50% from RE60% reflecting the assumption of additional delays on collections and sale of units, the project's limited ability to generate cash and further discounts applied to the price of the units through continuous bulk sales.
KEY RATING DRIVERS
Reduced Sellout Value: Since restructuring, the company has discounted prices in order to sell individual condo units, and executed two bulk sales at even larger discounts. This has impacted the overall collateral supporting the transaction. In addition, Newland adjusted the total hotel condo inventory as unit prices were deemed overpriced. As a result, the total sellout value of available inventory at current list prices is approximately $140 million, which is less than the outstanding balance ($198.9 million) of the notes.
Price Increases Not Expected: Newland's ability to pay the restructured notes in full hinges on annual unit price increases coupled with a rapid sales pace. To fully amortize the senior secured notes, the company would need to significantly increase list prices coupled with an increase in sales velocity. During the last 12 months, the company has been selling units at discounts to list prices in order to meet timely semiannual debt service. The company will continue to face pricing pressure, so any potential increases are not expected. Furthermore, Newland may be forced to conduct another bulk sale in order to meet the next scheduled semiannual debt service payment in January 2015.
Liquidity Risk: The next debt service payment of $32.9 million is due on Jan. 3, 2015. While sales have been relatively strong during the last few months and collections may be sufficient to meet the next debt service payment, the company may have to conduct a bulk sale to timely meet the next semiannual debt service payment.
Recent Debt Service Payments: Since the bond was restructured, Newland has successfully made timely payments on scheduled semiannual debt service. In addition, Newland has partially amortized the balloon payment through net proceeds related to a casino agreement with Sun International. Newland has demonstrated an ability to execute bulk sales of non-prime units to help meet timely semiannual debt service payments.
No Construction Risk: Construction and finishing work for TOC were completed in January 2013. The casino is expected to be open to the public by the end of October, at which point Newland will begin marketing the hotel condo units.
Historical Defaults: There have been a total of 460 unit defaults totaling $230.4 million ($53.4 million in forfeited deposits): six defaults in 2009, 27 in 2010, 234 in 2011, 148 in 2012, 43 in 2013, and two in 2014.
A rating upgrade could be considered if Newland demonstrates an ability to consistently generate strong sales at significantly increased prices.
The transaction is mainly backed by (i) a first priority mortgage on the real property owned by Newland; (ii) all cash, installment payments and unit purchase agreements from property sales; (iii) a first priority lien on all Newland accounts and all deposits therein; (iv) the Trump license agreement; (v) Newland's rights to all other revenues from the operation of the project, including: (a) revenues from the operation, sale and/or lease of the Casino, and hotel amenities such as restaurants and spa, and (b) all of Newland's rights to the Beach Club (BC) and Newland's rights to the BC Ferry, BC Ferry Payment and the BC Senior Loan, as applicable; and (vi) 100% of the shares in Newland.
In November 2013, Newland closed a $45.5 million deal with Sun International to develop and operate a casino at TOC. Pursuant to transaction documents, net proceeds were used to partially amortize the balloon payment. Newland also executed an amendment to the transaction indenture to allow for a portion of net proceeds from the casino deal to be applied to the January 2014 scheduled semiannual debt service payment.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014).
Applicable Criteria and Related Research:
Global Structured Finance Rating Criteria