Publications: Ungaretti & Harris Attorneys Succeed on ‘Island Time’

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Situation

An international acquisition is never a simple or straightforward process. Differences between U.S. and other countries’ business methods often pose barriers to smooth completion of transactions. These barriers were particularly visible as KL Holding Company, a closely held international resort and casino development company and an Ungaretti & Harris client, sought to acquire La Cabana Villas Timeshare Resort and the Royal Cabana Casino (La Cabana) in Aruba.

Problems and Strategies

The 362-room hotel and casino complex had been taken over by a bankruptcy trustee. Although the resort was in adequate shape, the casino had fallen into disrepair. In order for its client to begin the restoration, U&H attorneys had to overcome numerous legal, governmental and cultural obstacles.

The challenges began with obtaining clean title in the resort and casino. In Aruba, most property is owned by the government. Therefore, most property is developed pursuant to long leases with the Aruban government. This was the case with the La Cabana Resort. Even after signing the purchase agreement to acquire the seller’s interest in the long-lease, the buyer faced numerous difficulties in removing other claims on the property. Thus, the strategy U&H attorneys helped to devise was to hold a quasi-public auction, enabling KL Holding Company to purchase the long-lease and related assets through an auction conducted by a public law notary in Aruba.

Making the purchase tax-efficient for foreigners investing in Aruban property was an additional challenge. In order to achieve the tax goals of both our client and its investors, U&H attorneys participated in devising an intricate tax strategy. The solution was to form entities throughout the Caribbean, which allowed the U.S. taxpayers to utilize foreign tax credits for paying tax in Aruba and allowed foreign investors to not receive U.S. sourced income.

A third challenge came in borrowing $65 million (which represented a substantial portion of the purchase price) from various entities to purchase La Cabana and redevelop it in a permanent-private debt offering. In addition to raising the debt, U&H assisted the client in negotiating the equity participation that was provided to the investors.

Aruba’s comparatively slower, “island time” lifestyle posed further difficulties, namely, acquiring three different operating permits required by the Aruban government. In contrast to the U.S. system, where such permits would be fairly simple to obtain, in Aruba it can take months to get commitment letters promising these permits. Although Arubans often finalize deals without them, our client’s largest lender refused to close unless we had the appropriate business licenses in hand. U&H attorneys, working in concert with local counsel, assisted in the application for these permits and confirmed the adequacy of the permits, securing them in three weeks – an extremely quick turnaround compared to the island’s typical timeframe.

Result

With numerous obstacles behind them, U&H attorneys completed the acquisition of La Cabana. KL Holding Company can now begin major capital improvements to make La Cabana one of the best and largest timeshare and gaming properties in the Caribbean.