New Owner of Simpson Bay Resort & Marina Remains Committed to Operating Resort

Simpson Bay Resort & Marina


SIMPSON BAY, ST. MAARTEN (Feb 16, 2011) – The new owner of Simpson Bay Resort & Marina & The Villas at Simpson Bay remains hopeful that a quick solution can be reached which will allow it to operate the resort in a viable and financially feasible manner. The resort was acquired January 26, 2011 via the public auction of Dec. 16, 2010. The subsequent decision to cease operations of the property on Feb. 20, 2011 was an unavoidable result of additional liability claims and unforeseen operational deficits incurred and was only implemented after all other options have been exhausted.

This is the second time in history that the resort, formerly known as Pelican Resort Club, had to cease its operations because of financial troubles. These troubles stem from a major flaw that has plagued the resort for well over a decade – high operational expenses, low employee productivity and inadequate revenue to sustain it. It should be further noted that employment salaries and benefits constitute a disproportionate expense of approximately 50% of the resort’s operational fees.

The records are clear and well documented. Under the second owner, The Tenant’s Association of Pelican Resort Club (TAPRC), the resort always ran at a deficit and the Board ignored the recommendations of its professional management company. The official TAPRC records as far back as the 1998 Annual General Meeting of timeshare owners clearly documents the issue:

“[Board Member] Patterson indicated that the Board had not made a decision; however, the 1998 budget showed a deficit of US$462,848. – and the Resort cannot continue operating at a deficit. The Annual Maintenance Fees have not been increased in two years and the Board does not feel it can continue another year without an increase. Richard Sutton, Director General of Royal Resorts, stated that it was their earlier recommendation, after studying the 1997 financial position, that the 1998 AMF be raised by 10% but this was rejected by the Board.”

For the last 13 years, Pelican Resort Club has been borrowing money to cover budget short falls as a consequence of its high operational expenses and unrealistically low maintenance fees. The new owner of the Simpson Bay property is the same lender that Pelican Resort has been borrowing money from for many years so that the resort could keep its doors open.

In 2004, the same lender rescued Pelican Resort Club with a US$ 3.185 million dollar loan when Trustees of Billy Folly Development threatened involuntary bankruptcy if the 1996 bankruptcy debt was not settled in seven business days. The general public should know that when the
timeshare owners bought the resort in 1996 they did not pay the full price, but only part of the purchase price. In 2004, eight years after the initial down payment, the timeshare owners still had not provisioned funds to pay the balance of their debts or were simply unwilling to reach into their pockets to pay for their purchase. The timeshare owners in any case approached the same lender for an emergency rescue loan to prevent another bankruptcy.

In 2005, that same lender provided a loan to Pelican Resort Club in excess of US$25 million to finance the construction of the Pelican Marina Residences, a project which the owners at the time (TAPRC) intended to use to create additional revenue in order to pay for Pelican Resort Club’s yearly budget shortfalls, multi-million dollar debts, and deferred maintenance.

Official records dating back more than 10 years show TAPRC’s desire to earn their way out of debt via a new construction project. The Official Minutes of the 2002 Annual General Meeting of timeshare owners on Dec. 3-4, 2002, quote TAPRC Treasurer Bob Ryan:

“The resort should set up the proper reserves. We therefore need to start the Marina project so that we can generate additional cash.”

It is utterly incredible that the same lender who supported and saved Pelican Resort for so long can be seen in any way other than heroic.

Although Pelican Resort Club had previously defaulted on its loan payments for more than nine months in a row during the 2008 worldwide recession, the lender and new owner was lenient, did not cancel the loan, sat down and actually agreed to reduce the annual interest rate from 10% to 8% and reduce the default annual interest rate from 18% to 10% at the end of 2009. Furthermore, the lender waived all accumulated default interest debts.

This was a multi-million dollar savings for Pelican Resort and a renewed opportunity for prosperity. The loans were fully restored to good standing and the monthly mortgage payments were made on time from the end of 2009 through July 2010.

This was deemed an extraordinarily lenient action on the part of the lender, which would have been within its legal right to foreclose on the property more than two years ago. But foreclosure was never the lender’s intended goal. The lender simply wanted its loan repaid. Nothing more and nothing less.

Despite the new debt repayment arrangement and the leniency shown by the lender, Pelican Resort Club, upon mandate of its newly elected Board of its shareholder, The Tenants Association Pelican Resort Club, basically decided not to pay its loan anymore.

In a bold and aggressive strategy, the TAPRC’s USA attorney directed management on June 17, 2010 NOT TO PAY the contractual loan payments. On July 2, 2010 the same USA attorney for TAPRC advised that Pelican would pay their bills if the lender and management would agree to restructure their contractual relationships. In hindsight it is very clear that this was not a well-advised legal plan.

Furthermore, the previous owner spent a significant portion of its 2010 operational revenue, unbudgeted – comprised of fees collected from timeshare owners – to hire U.S. attorneys and consultants who appear to have promised to find legal loopholes to cancel its debt with the lender. Despite there being no reasonable or legal grounds on which to take these aggressive actions, the previous owner pursued this strategy and intentionally continued to default on its loan payments.

It was only then that the lender, faced with an unreasonable and indignant borrower (TAPRC Board), decided to cancel the loan and exercise its legal rights to foreclose on its security, namely the Pelican Resort Club property. The Court of First Instance deemed this justified by the public verdict dated Dec. 14, 2010.

Two days later the investor bid on the resort at the auction on Dec. 16 as an attempt to safeguard its investment. The auction was open to the public, however, despite more than a month of extensive advertisement in the media to prospective bidders, the lender and now new owner was the only bidder as no one else was interested in purchasing a property riddled with financial and operational difficulties.

The new owner was aware that running the resort would constitute a great challenge, largely due to the negative propaganda campaigns implemented by the Board of The Tenants Association Pelican Resort Club and some misguided timeshare owners surrounding the resort and its operations. In order to operate the resort a significant amount of capital would have to be invested to keep the resort open.

In contemplating whether or not to operate the resort, instead of closing it until another buyer is found, the new owner realized that the budget deficit for 2011 was greater than ever, namely in excess of US$4 million. The endeavor continues to be challenging due to all the negative publicity from a small group of dissatisfied timeshare owners who are unhappy they lost their indirect “ownership” of the property, but at the same time, were unwilling over the years to keep supporting and investing in Pelican Resort Club so that it could remain operational.

Despite these challenges, which are, in principle, enough for any lender to simply close the resort until a buyer is found, the new owner opted to commence operation of the resort on January 26, 2011. This decision was largely based on social and economic reasons with consideration to the impact the closure would have, not only for the 200 people that worked at the resort directly, but for the additional approximately 200 people employed by independent tenant businesses which had operated out of the resort, as well as those working at the restaurants, shops, and casinos throughout Simpson Bay, which are all dependent on the tourist traffic attracted by the largest timeshare resort in St. Maarten.

In order to operate the resort in a financially sound and responsible manner, however, the new owner could not take the same operational approach that led to the cash shortages, and ultimately, the second downfall and second foreclosure of the property (land and buildings) of Pelican Resort Club.

As the cost of employment constituted approximately 50% of the operational fees of the previous resort owner, the new owner had no choice but to responsibly address this disproportionately high percentage in order to reduce the resort’s operational deficit and increase its efficiency. Although every option was thoroughly evaluated, it was simply not possible to take on the debts of the previous owner that built up over 30 years in order to sustain the long-term viability of the new property.

The general public should know that the resort is presently running with 55 workers employed by the new operating company and approximately 120 service providers working four days per week. Previously, the resort was running under the old owner with 200 full time employees of Pelican Resort Club, The Management Company N.V. and approximately 90 additional service providers working four days per week.

One should ask oneself how it is possible that the resort can function in peak season perfectly with the amount of people that are currently working there. The answer is simple. More employees are not needed. This means that the resort can operate effectively and efficiently with closer to 100 employees, versus the 182 employees the Windward Islands Federation Of Labor (WIFOL) is demanding the new company hire.

The WIFOL Collective Labor Agreement had productivity standards far below what a person can reasonably perform in a normal workday. In 1996 the TAPRC chose to accept the union terms and the resort, and all the timeshare owners, have been paying the price ever since.
The new owner decided nevertheless, being fully aware hereof, to initially offer employment for six months to all employees that worked for Pelican Resort Club, The Management Company N.V. That proposal – and all others were rejected – including the last offer to employ at least 145 employees of the previous owner, directly and for an indefinite period of time (fixed employment).

The new owner negotiated for more than 32 days with the representative of the employees of the old owner in order to reach a consensus so that the majority of workers could be offered employment with the new owner when it commenced operating the resort.

Unfortunately, WIFOL adopted a rigid position in demanding that all employees of the old owner be employed with the new owner and with same terms and the same Collective Labor Agreement. The investor and new owner offered compromise after compromise, but no consensus was reached.

Finally, an agreement was reached and signed by WIFOL’s President Mr. Theo Thompson, but WIFOL would not agree to abide by the very compromise reached by its stated representative.

WIFOL appeared unwilling to negotiate and refused to accept the current economic reality that faces every person and every business today.

Hotel and timeshare properties throughout the Caribbean and the entire world have been forced to reduce employment in order to cope with the global recession. It is a decision that no management company enjoys making, but it is an unfortunate necessity, as businesses need to remain viable in order to sustain their operation in the long-term and continue to provide any employment opportunities.

The ruling of the St. Maarten court dated Feb. 8, 2011, created another new and unforeseen challenge for the new owner. In addition to facing an operational deficit in excess of US$4 million, it now immediately incurred an additional liability and debt of over US$4.1 million – a liability that must be paid when terminating a labor agreement, further contributing to the lender’s overall debt – bringing the total 2011 budget deficit to more than US$8 million. This is on top of the US$30.5 million it bid to purchase the resort as well as millions of dollars of loans to the previous owner that it has yet to recover.

The court’s recent decision directing employment of all 182 union workers under identical terms as the previous employer – if upheld – would add an additional burden of approximately US$1.5 million to the resort’s annual budget deficit. It is obvious to any casual observer that these debts are unsustainable.

The new owner has valid concerns regarding the wisdom in employing workers who – as a result of the breakdown in WIFOL negotiations and negative feelings which have been fanned by the continued negative publicity efforts of the Board of the TAPRC – it must anticipate may not be willing to make a positive contribution to the resort. The 50+ employees of the previous owner who did come to work for the new owner are performing at high quality levels and with excellent attitudes.

A small number of timeshare owners led by the new Board of the TAPRC have continued to sit on the sidelines, criticize and allege all types of conspiracy theories – without taking constructive action to work towards a positive future for the resort, its previous employees, timeshare holders and St. Maarten.

The simple reality is that no one, except for the new owner, has been willing to invest the large sums of money in the Pelican Resort Club required to keep it in operation – including the timeshare owners themselves, who’ve enjoyed annual maintenance fees that are on average 30% less than neighboring timeshare resorts.

It is easy to sit on the sideline and throw stones when one does not have a major investment at risk and is unwilling to aid the resort by reaching into their own pockets, but the new owner, having already invested millions into the resort prior to the Dec. 16 auction, does not have that luxury.

In order to operate a financially sound and secure business one must be able to pay its debts and expenses.

The new owner has simply not budgeted for and does not have the financial recourse to pay the unforeseen liabilities and deficits. In addition to these mounting debts are years of deferred maintenance that the previous owner, TAPRC, was unwilling to pay for and which must now be addressed.

Without the ability to make ends meet, at least not without obtaining additional financing, the new owner is left with no choice but to cease operations effective Feb. 20. This is the only reasonable and, frankly, responsible course of action.

Despite being forced into this difficult action, the new owner is hopeful that a quick remedy will be found and a solution brokered between all respective parties that will allow it to commence operation of the resort in a financially responsible manner.

The new owner deeply regrets the stress the situation has caused for the workers of the previous owner as well as the timeshare holders whose vacations will be affected, but it simply cannot operate the resort at a loss without any strategy or ability to reduce its budget deficit and increase productivity in the foreseeable future. The new owner is also distressed by the impact these events have had on the people, business owners and government of St. Maarten.

The new owner will continue to strive toward a solution to bring down expenses to a reasonable and manageable level, to increase efficiencies in labor and utilities, and to attract additional financing to pay for the expenses in a responsible manner. The new owner and will keep the General Public apprised of its efforts as having a viable operating resort is ultimately in the best interests of all.

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