Flamingo

FLAMINGO UPDATE BY BRUCE CAMERON
Contact Bruce by email at dbcameron@hfx.eastlink.ca

September 2001

Hi folks. I have had a number of questions for back issues from new list members etc. that i though it would be useful to create a sort of FAQ back grounder that I could send to new members. This is it. I hope to complete a regular newsletter as well this weekend. In the meantime here's the recap on where we are and how we got here.

Catch up - Summary of the Story so far...
Last June 2000, Sunterra Corporation went into Chapter 11 - protection from creditors while it reorganized its financial affairs. This corporation, which controls the company that owns our resorts, was financially over extended. The core of the trouble is that it had counted assets that had to be written down which then caused losses and as the company went from being profitable to losing money it went into default to its lenders and could not refinance its debt. That's a VERY short summary of a long story - but is the core of the problem. They are in a form of Chapter 11 that allows them the status of "Debtor in Possession". What this means is that they continue to operate the company (and the resorts) using the maintenance fees and the management fees that are part of that, but all done under court supervision. The court supervision is such that they cannot make any move that affects assets (like selling land, buildings etc.) without approval from the courts. However they can continue normal business of renting or selling long-term leases (Timeshare weeks).

The Chapter 11 status is supposed to allow a company time to carefully add up the assets and liabilities under court supervision and allow the company an opportunity to make an offer to the creditors - e.g. our assets aren't really 1 billion they are $500 million and that $800 million that you lent us (plus the $200 million we got from shareholders) cannot all be paid back. So we propose to pay you 50 cents on the dollar, shareholders get nothing - what do you think? That is a VERY simplified explanation of a VERY complicated situation and the numbers are totally fictitious - but I hope you get the idea. This process is taking longer than expected.

The letters many (but not all of us) received were part of the process to clearly identify who is owed what so that offer can be drawn up. Strictly speaking - lease holders (timeshare owners) are not creditors in this process. However, in the course of doing business with Sunterra we may have become creditors - e.g.. we have given them money for a unit that hasn't been built or were offered something that hasn't been delivered e.g. a bonus week for a purchase). Many people sent in the forms because they were concerned about the ambiguity of their situation and just wanted to be safe rather than sorry. Many others did not, and that is probably ok too if you have your units and have no outstanding promises.

Looking Forward
There is no firm date when all this will end, or whether the creditors will accept a deal. If they vote no, then the resort does go into formal bankruptcy and the assets (our resorts) are sold off and we have new owners (again!) The new owners will have to respect our leases (St. Maarten law) and so it goes.

We were told at a number of meetings over the winter and spring that the resorts are now budgeted to break even. By this they mean the maintenance fees from all owners plus Sunterra paying maintenance on unsold weeks - adds up to the anticipated normal operating expenses including maintenance, resort operations, insurance etc. plus a management fee to Sunterra. This probably does no include any long-term reserve funding for Royal Palm - but it may for Flamingo (attempts to get proper financial information here have not been very successful). However, it is also known that a number of the "sold" weeks are in serious arrears and have little or know hope of recovering maintenance fees. If they are desirable units, the resort will eventually foreclose and resell the unit. If they are undesirable (i.e. the back of Flamingo in September overlooking the closed laundry) then the resort is no hurry to foreclose and the best we can hope is that they are eventually foreclosed and sold to someone who really wants Sun points and the "ownership" of the week is put into that vast pool and that person does pay the maintenance fee. If not we have a potential shortfall from a) sunterra not paying - so far they have and b) the default units not paying. There is a 7% "bad debt" line in the budget so a fair number of "owners" can refuse to pay and we can still be ok. But if the defaulted owners are more than 7% of the resort, that will be a problem. We should recognize that some portion of the "default" weeks were sold to folks who changed their mind and wrote off the 10% down payment and now the week is in limbo until Sunterra recognizes that sale has gone bad... Final note on maintenance fees, the resorts have been quite strict on having them paid before allowing for a transfer into RCI or an owner occupancy.

Special Assessment
With respect to the latest special assessment, things have been a lot more slack. Many people have paid the extra fees. Many people have not. The money was supposed to cover advances Sunterra made for hurricane losses not covered by insurance (the frequency of hurricanes has sent the insurance rates through the roof and even when available the policies require the resorts to pay a very significant deductible) and to replace the Capital Reserve Accounts depleted by refurbishing etc. and to set up some future reserves for hurricane deductibles.

The legality of such special assessments is governed by the lease language on your contracts. The language is far from uniform. We do not have a single unified interest here. Contracts were changed in the 90's and changed again when Sunterra took over. Owners who bought in the early days have more rights than those who bought later. The issue for all of us is whether Sunterra is assessing an extra fee for illegitimate purposes. Proving the substance of that argument would be very expensive. For some it wouldn't be necessary to prove the substance of illegitimacy - it may be that the process was wrong and proving that could be easier. But again, not all contracts are the same, and proving anything would take quite an expensive battle. Some have such a significant interest that these battles are worthwhile (Joel Kane who owned and still owns a huge number of units at Flamingo and the Royal Palm quarter share or full share owners are two groups who have battled in the courts) but most of us have not. The information here is partly based upon legal advice I received from a very good timeshare attorney in St. Maarten who has agreed to represent us if we wish to pursue legal avenues at some point in the future.

So far the resort has done little to enforce the payment of the assessment fees. they billed us and left it at that. When I was there in March they asked me to pay maintenance and assessment. I paid maintenance and said I would pay assessment when the financial information I requested arrived. It never has and no one has asked me to pay again. So far there is no report of anyone being refused entry. And so the matter lies. The assessment is partly for the future, partly for the past. Failure of the resorts to collect all the assessment fees mean Sunterra is owed money and may try to collect it in the future as may a potential new owner (bankruptcy writes down or off the debts Sunterra owes - it doesn't affect money people owe to them). It also means the reserves for future hurricane damage are not there. Personally, I plan to pay the money some day - but I hope to use such payment as leverage to get the financial information promised and to gain some assurance it will be used as promised and won't disappear into the general creditors-reorganization. Others may feel differently.

Home Owners Association or Tenants' Rights group
Some people have expressed interest in a "Homeowner's Association" HOA for short. There is no such entity guaranteed under St. Maarten law. The rights of such a group are totaly governed by your contracts. Again some of the earlier ones made some reference to a group like this - but the later ones did not. This conclusion was drawn after the conversation with the St. Maarten Attorney. So, for most intents and purposes there is no organization that Sunterra HAS to deal with. Nevertheless, there may well be merit in establishing a Tenants' Rights Group that gains the membership of a significant number of us, has democratic procedures and can speak to management as an organized group with collectively arrived at points of view.

I am not trying to organize such a group, but others are thinking about it and an organized move in this direction may well be coming. I am prepared to use this forum to formally link like-minded people together. What is needed are people who are willing to become leaders/part of the working committee - the core of a group. If you are out there, please identify yourselves and I'll provide the connection for you to meet. I'll also provide the forum for you to make your pitch for members. But, I think it also useful to provide this list for anyone who simply wants to watch what is going on and is not prepared to take a position - or perhaps even takes a contrary position. Conceptually then, this list should always have a wider audience than the Tenants' Rights Group.

Bruce's E-Mail List - Newsletter
I now have some 250 e-mail names on this list. i will not pass them on to anyone else. Please pass my address on to others who would like to be linked up with others. I am the editor. I am a relatively well informed individual who has been an owner at Flamingo since 1990. I was a former editor of the Pelican E-mail list and handed it over to Judy when Flamingo and Royal Palm left the Pelican fold. I have an MBA and 27 years experience in communications and journalism. I have some spare time (never enough!) and so I am trying to share what i learn and what others have learned through this newsletter.

Web site
As some of you know, we had a web site for a while but it was canceled for reasons I still can't figure out. Nevertheless it took me several days to build and I haven't had the time to rebuild - even though there are some who are willing to help. The main task is just the writing - other folks are willing to help on design. Please hold on - we will get through this - but I just need a bit more time to find the time....

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