ISLAMABAD: The government is likely to extend a funding of $ 125 million to PIA-IL to pay for severance of employees and debts of Roosevelt Hotel, New York, as the Board of PIA-IL Roosevelt Hotel Corporation has recommended the closure of hotel, well-informed sources told Business Recorder.
The government argues that in the backdrop of Covid-19 pandemic, the hotel industry has been severely impacted across the globe. The PIA-IL owned Roosevelt hotel in Manhattan, New York, has also experienced extreme cash flow constraints since March 2020. Chairman PIA-IL has provided detailed information in this regard relating to the financial challenges in operations of Roosevelt Hotel; potential source of funds; union issue/ dues; tenants' affairs; future outlook and Board's decision for GoP's consideration and action.
Some relevant points are as follows;(i) even partial operations of the hotel are not sustainable at the moment;(ii) Roosevelt Hotel Corporation has already obtained a loan of $ 105 million from JP Morgan (lender) on an interest rate of 5.05 per cent with maturity in April, 2021.
The annual interest payment is $ 6 million approximately;(iii) JP Morgan has sold its loan of $ 68.250 million to MSD PCOF Partners XXII, LLC(MSD);(iv) selling of JP Morgan portion of loan to MSD has further complicated the situation for Roosevelt Hotel Corporation due to the following reasons;(a) for several years MSD has been expressing its desire for a JV partner in development of Roosevelt site;(b) MSD as lender, may attempt to leverage its position in achieving its ultimate goal and ;(b) MSD is also owner of the air rights in Roosevelt vicinity.
In view of the existing position, PIA-IL management is of the opinion that MSD has acquired the major portion of Roosevelt loan (by design) in order to become the sole lender, and in case of possible default, it could quickly step in and seek a foreclosure.
The current position was considered by the Roosevelt Hotel Corporation Board in its meeting held on July 3, 2020 and the Board decided that GoP be apprised of the facts and Board's recommendations be forwarded to GoP for consideration;: (i) Roosevelt's operations be shut down;(ii) all union and non-union employees be severed against the severance payment of approximately $ 20 million;(iii) the current debt of $ 105 million secured against a mortgage on the property, and the counter guarantee by PIA-IL, be paid forthwith ;(iv) the debt of $ 105 million and the cost of severance, if any, are Roosevelt's liabilities / responsibilities which need to be paid/refinanced irrespective of whether the hotel is closed or operational.
In the backdrop of prevailing situation, a meeting was chaired by Advisor on Finance to Prime Minister and Revenue Dr Hafeez Sheikh last month through a video link which was also attended by the Ministers for Aviation and Privatisation , PIA etc, wherein it was decided that based on recommendations of Board of Roosevelt Hotel Corporation, Aviation Division and Privatisation would submit a joint summary to the ECC for consideration.
Chairman PIA-IL in a letter on August 8, 2020 stated that financial health of PIA-IL with existing proceeds repayment of $ 56 million to PIA-IL is not possible. He has requested GoP to provide a funding of $ 125 million to pay to PIA-IL to meet employees' liabilities and debt.
Copyright Business Recorder, 2020