Ritz-Carlton owners and developer Ryan settle litigation

Two lawsuits filed in 2012 by the former secured lender and now owner of the Ritz-Carlton Grand Cayman against the resort’s developer Michael Ryan and related companies have been settled. 

Grand Court Justice Peter Cresswell ordered the two cases dismissed by mutual consent on Dec. 20, 2013.  

Five Mile Capital Partners LLC and Mr. Ryan confirmed that a settlement was reached but the terms of the agreement are confidential. 

“I am prohibited from going into details but I can tell you that I am very pleased with the outcome,” Mr. Ryan said.  

The consent order stated all funds held by the plaintiffs’ attorneys as security for costs should be released to the plaintiff and that there will be no cost order. 

The cases  

In the first case, RC Cayman Holdings, the secured lender of the Ritz-Carlton property, claimed default under a loan agreement and demanded the immediate repayment of US$234 million from Mr. Ryan, as the guarantor of a $250 million loan.  

When the case was filed in March 2012, RC Cayman Holdings also appointed Kris Beighton and Keith Blake of KPMG as joint receivers of Cesar Hotelco (Cayman) Ltd, CondoCo Grand Cayman Resort Ltd, Cesar Properties Ltd and CondoCo Properties Ltd, the companies that developed and owned the Ritz-Carlton.  

The receivers brought a second action on behalf of the ownership companies to recover funds from servicing companies of the resort controlled by Mr. Ryan.  

The second lawsuit alleged that assets belonging to the receivership companies had been sold in transactions “with no or illusory consideration” and that Mr. Ryan and one of his companies, Orion Development, had received US$44 million in “unexplained” payments. Mr. Ryan denied these allegations, stating that all of the transactions were used for legitimate business purposes and had been properly accounted for.  

The action also sought to recover commissions for condominium rentals and rental deposits for condominium properties transferred to the servicing companies. Mr. Ryan maintained that none of the funds were owed to the ownership companies and they had been used legitimately to cover operating expenses.  

Mr. Ryan counterclaimed for unpaid fees and expenses he had personally contributed to support the project, together with damages for the alleged wrongful termination of the development and operational agreements. 

Speaking to the Caymanian Compass on Wednesday, Mr. Ryan said all sorts of allegations had been made on both sides. “I always denied [the allegations against me],” he said. “I am pleased that there has been a settlement and the cases have been dismissed.” 

Sales and stamp duty issues  

Based on unaudited balance sheets examined by accounting firm Deloitte, the former ownership companies of the Ritz-Carlton resort had US$261 million in total assets and US$601 million in total liabilities, leaving them insolvent to the tune of US$340 million at the time they were transferred into receivership on March 12, 2012. 

After the property, which included the Ritz-Carlton hotel, unsold condominiums and various lands associated with the development, was put up for sale by auction, the secured lender acquired the resort in October 2012 for the reserve price of US$177.5 million.  

The new owners of the resort, a subsidiary of private equity firm Five Mile Capital Partners, subsequently said that following the sale, all unsecured creditors had been “wiped out.” This included the Cayman Islands government which sought to recover CI$6.2 million in deferred import duties owed by the previous owner companies. 

The finding was disputed by the former UDP government under McKeeva Bush, who also questioned the validity of the sale price achieved in the auction and argued a higher price should be applied for stamp duty purposes. 

However, Five Mile Capital Partners confirmed Wednesday that the stamp duty issue “was resolved and title transfer took place in May 2013.” 

Since the acquisition of the hotel and its associated properties, Five Mile Capital committed to investing approximately US$25 million of capital, through its Cayman affiliates, to improve The Ritz-Carlton, Grand Cayman property. 

Approximately half of that investment has already been made and the other half will be made over the next 18 months, Five Mile said in a statement. “Five Mile’s significant capital investment is designed to elevate The Ritz-Carlton, Grand Cayman to a premier resort destination within the Caribbean, and lead to substantial direct and indirect economic benefits to the Cayman Islands’ economy.” The owners have also undertaken a US$130 million refinancing of the Ritz-Carlton Grand Cayman property. 

Law firm Conyers Dill & Pearman, which represented RC Cayman Holdings in the law suits, advised Cayman Hotel Holdings Ltd., a local subsidiary of Five Mile Capital Partners, in the refinancing. The transaction involved eight firms of attorneys representing the varied interests of the parties, Conyers said in a December 2013 press release.  

“The financing arrangement for The Ritz-Carlton, Grand Cayman announced in December 2013 was completed prior to any settlement with Michael Ryan,” Five Mile Capital Partners said. 

Ryan will stay in Cayman  

Despite the ultimate financial difficulties surrounding the development, Mr. Ryan said he is very proud of the project. “I developed it myself with a great team of people over 15 years to make it the number one resort in the region. I think it is extraordinary what we have accomplished.  

“I think it is a great thing for Cayman and I am proud of what we did and I am proud that it will go forward, I hope, and continue to be a success for the new owners.” 

Asked about his personal plans, Mr. Ryan said he will stay in Cayman, which has been his home for 17 years. “I am a Cayman citizen; I have been for a long time. And I am looking at other projects and hope to develop more great things for Cayman and contribute more to help it realize its potential as a premier destination both for tourism and for business.”