Piper Sandler
A $450 million unrated, triple-tax-exempt bond deal set to cost subsequent week will finance the sale of outstanding Fortress Funding Group-owned resorts on the U.S. Virgin Islands to an Arizona-based nonprofit.
It is a “massive juicy high-yield deal,” stated an investor who’s eying the transaction.
The financing marks the primary use of a newly created USVI conduit issuer, the Virgin Islands Lodge Improvement Financing Company, which isn’t topic to the 35 investor restrict that applies to sure offers. The property shall be handed over to the USVI authorities after 30 years or the debt is retired, whichever comes first.
Collectively the resorts make up the USVI’s largest lodge and its second-largest personal employer and are an “important asset” to the federal government, stated Brad Langner, managing director at Piper Sandler and lead banker on the deal.
“It is an thrilling story,” Langner stated. “This can be a marquee, iconic asset on the island. It is a very distinctive construction with triple-tax-exempt bonds and many advantages for the USVI authorities.”
The $448.6 million of bonds — that are backed by internet lodge revenues — are restricted to certified traders and set to cost Dec. 10 relying on market situations. Piper has obtained “actually good engagement” through the advertising interval, Langner stated. Amongst different options, the staff is touting the “closed-loop indenture” that requires all extra income go to pay down debt or fund reserves. “It is a 100% self-contained indenture. That is to guard the bondholders,” Langner stated.
The transaction contains three tranches: $272.5 million of senior-lien lodge income bonds; $164.2 million of subordinate-lien bonds; and $12 million of federally taxable senior bonds. Individually, Fortress has agreed to purchase $15 million of subordinate debt in a personal placement if essential, in accordance with the preliminary official assertion.
Initially opened within the early Seventies, the property was destroyed in 2017 by Hurricanes Irma and Maria. Fortress purchased the properties in 2021 and spent $480 million on a serious rebuild that featured Miami-Dade hurricane requirements designed to guard in opposition to a class 5 storm. The rebuild was lined partly by the issuance in 2024 of $83 million of bonds which can be backed by lodge occupancy taxes in addition to USVI financial restoration charges. “That is such a vital asset for the USVI that they authorised an financial incentive package deal to rebuild it,” Langner stated.
The 2024 bonds will stay excellent.
The lodges opened on the finish of 2023 and are “doing properly” however stay in a ramp-up part, stated Langner.
Regardless of the rebuild geared toward defending in opposition to future hurricanes, a second investor predicted the deal must include larger yield to compensate for climate danger going through the coastal properties, that are situated in Frenchman’s Bay on the south aspect of St. Thomas.
“Perhaps the chances aren’t as excessive however it’s nonetheless hanging out proper on the coast of St. Thomas island,” the buysider stated. “That is a tricky danger to take. I might assume that they must provide rather a lot [of yield].”
The bond purchaser added that the “muni market is financing Fortress out of that property.” The borrower, CFC-FR, LLC, consists of Arizona-based nonprofit Neighborhood Finance Corp. The CFC, which payments itself as present “for the aim of lessening the burdens of presidency and to erect, finance the erection of, or preserve public buildings, monuments or works,” additionally owns the Grand Hyatt in San Antonio, Texas, in addition to a number of personal prisons, in accordance with its
A Fortress spokesperson didn’t remark by press time. CFC didn’t return a request for remark.
The deal comes after a number of weeks of uncertainty within the high-yield market. Excessive yield municipal mutual funds noticed small inflows of $97 million for the week ending Nov. 26 after $142.1 million of outflows the week prior, in accordance with LSEG Lipper.
