A resort group owned by hedge fund Paulson & Co. won approval for a plan to exit bankruptcy by selling properties to a Singapore sovereign wealth fund.
MSR Resort Golf Course LLC’s plan was confirmed today in Manhattan by U.S. Bankruptcy Judge Sean Lane, who overruled objections by the U.S. Internal Revenue Service and investor Five Mile Capital Partners LLC.
Government of Singapore Investment Corp., the world’s eighth-largest sovereign wealth fund, according to the Sovereign Wealth Fund Institute, is set to buy four of MSR’s resorts for $1.5 billion. The IRS and Five Mile alleged that the sale created a tax liability of as much as $331 million that may not be paid.
“All objections and all reservations of rights that have not been withdrawn, waived, or settled pertaining to confirmation are hereby overruled on the merits,” Lane said in an order filed today.
The Singapore fund is buying the Grand Wailea in Hawaii, La Quinta Resort & Club in California, the Arizona Biltmore Resort & Spa in Phoenix and the Claremont Resort & Spa in Berkeley, California.
A fifth resort, the Doral Golf Resort & Spa in Miami, was sold to Donald Trump in June. The resorts entered bankruptcy protection in 2011 after a joint venture including Paulson acquired them through foreclosure.
Today’s ruling came after a hearing earlier this month where witnesses for MSR testified that the company wasn’t trying to hide the tax liability, and that it would be incurred by a real estate investment trust that isn’t in bankruptcy.
The plan provides for repayment of 96 percent of secured debt and 100 percent of general unsecured debt, according to a Jan. 31 court filing by MSR. Five Mile stood to lose about $58 million, including investments by pension funds and other parties, David Friedman, a lawyer for Five Mile, said during the hearing.
The resorts sought approval in August for an auction with GIC as the lead bidder. The auction was canceled after no competing bids were received, according to a court filing in December.
“When we came into bankruptcy, people thought the world was going to get better a lot faster,” Basta said in court on Feb. 4. By August, “Five Mile couldn’t get their deal together,” he said.
Paulson and co-investor Winthrop Realty Trust (FUR:US) put the five resorts into Chapter 11 in February 2011 to prevent foreclosure of $1 billion in mortgages and $525 million in maturing mezzanine debt.
The properties listed assets of $2.2 billion and liabilities of $1.9 billion. An affiliate of Morgan Stanley (MS:US) purchased the five resorts in 2007 for $4 billion.
The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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