Collateral Concerns Loom for Cap Cana Bonds

Lack of transparency at Cap Cana, the Dominican greenfield resort project, has vexed analysts seeking to ascertain the risk and recovery value for the company’s outstanding bonds – some $250m in 9.625% 2013 notes issued in 2006. With few clear and hard facts from Cap Cana’s management regarding the performance of the high end real estate project, credit analysts find themselves having to speculate on the implications of statements made by the company. For Sam Fox, head of EM structured finance at Fitch, which rated the notes ahead of their issue, the main questions revolve around three main points: how much capital is available in the deal’s escrow account and whether it is enough to cover the cost of the first phase of construction, slated to end in the Q1 2009; what specific properties are backing the 2013 notes; and whether Cap Cana’s holding company is committed to guaranteeing completion of construction should the project run out of cash. Separately, in a November 17 report on the credit, JPMorgan observes the Cap Cana’s latest remark on the first phase of construction is unclear about the progress it has made on construction. “The company’s press release … does not provide a clear answer to the status of Phase I,” notes the report, which goes on to infer the company is probably close to a point where it can release some of the assets that back the notes. As questions on the credit multiply, the company’s management has been increasingly hard to reach, says one analyst.