Mystic seeks bankruptcy protection to keep bondholders at bay - $1.1b bond in default
$1.1b bond in default
The fate of the Mystic Mountain attraction, known for its adrenalin-pumping zip line, roller coaster and ATV buggy rides, now hangs in the balance following this week’s expiration of a 14-day ultimatum to make good on a $1.13-billion debt to...
The fate of the Mystic Mountain attraction, known for its adrenalin-pumping zip line, roller coaster and ATV buggy rides, now hangs in the balance following this week’s expiration of a 14-day ultimatum to make good on a $1.13-billion debt to bondholders.
The company was told to pay up or face the consequences, including forced liquidation through receivership.
The January 26 demand notice on Mystic Mountain Limited, MML, which owns and runs the attraction, was served by bond trustee JCSD Trustee Services Limited to avoid further impairment of the bondholders’ interest, the trustee documents seen by the Financial Gleaner said. The JCSD said it was acting on behalf of bondholders who passed a resolution on January 21 for the notice to be served.
But the period having expired, the bondholders have been barred from following through on their threats to place the company in receivership and liquidate its assets to pay off mainly pension funds that hold the bonds, has been stayed by a last-minute manoeuvre by MML.
The company, through, its ultimate owner, British Virgin Islands-registered Rainforest Adventures (Holdings) Limited, or RFA, pre-empted its creditors by filing a notice under the insolvency laws to make an alternative proposal to bondholders. The filing invokes another 30 days for the consideration of the company’s proposal.
RFA’s ultimate ownership of Ocho Rios-based Mystic Mountain is held via Karibukai, a St Lucia-registered intermediary through which RFA and other shareholders, based in Jamaica, own MML.
Officials of the Office of the Supervisor of Insolvency were not available to confirm receipt of the notice from MML or to provide any other comment, when the Financial Gleaner contacted them on Thursday.
General Manager of Jamaica Central Securities Depository and JCSD Trustee Services Limited, Andrea Kelly, said her office received notification of the filing from the Office of the Supervisor of Insolvency this week and was in the process of informing the bondholders. She declined to comment on the nature of the proposal before the creditors were advised and had considered the matter.
The bond was issued in September 2018 and matures in 2025, with interest at 7.25 per cent per year.
The default events outlined in the JCSD’s notice included failure to pay interest and principal instalment due, the non-replenishing of debt service reserve account, bondholders not being properly advised of litigation affecting the company, insolvency of the company, and other breaches of the financial covenant.
The interest payment fell due in September last year and a partial principal repayment should have been made in December.
Since March 2020, Mystic Mountain’s CEO and co-founding shareholder Michael Drakulich had been seeking a reprieve from the bondholders to postpone interest payments for between six months and one year, and put off principal payments for up to two years. He cited a fall-off in business from the drying up of tourist and local traffic to the attraction as a result of the COVID-19 pandemic, and the need to utilise available limited cash flow to complete capital expansion work. The bondholders turned down the proposal.
MML, its shareholders and directors have been embroiled in a court battle for control of the business. In November, the Supreme Court denied an application by Drakulich and other Jamaica-based shareholders and directors for an injunction to block RFA from making board-level changes, including adding more directors and removing Drakulich as a director, as chairman, and as CEO.
On Monday, President of RFA Josef Preschel updated MML shareholders on the developments in a notice, in which he described himself as the sole director of Karibukai.
“In light of the current financial position of Mystic Mountain Limited…the company is unable to meet its obligations as they become due in the usual course of business; and … has determined that it is in the best interests of the company to file a Notice to Make a Proposal and proceed with available options under the Insolvency Act of Jamaica,” Preschel said.
Attorney for RFA, Simone Bowie-Jones of the Myers, Fletcher & Gordon law firm, relayed the sentiments of her client to the Financial Gleaner on Thursday.
“Though it is unfortunate that the company has to file a notice of intention to submit a proposal, it is grateful for the continued support of the Jamaican people and is certain that the bondholders will understand that the proposal puts forward a benefit to them and to visitors (to the attraction), as the company is an asset that will continue to be enhanced as tourism comes back on stream,” she said on behalf of the Mystic Mountain parent company.
Bowie-Jones added that in keeping with the green light received from the courts in November last year for RFA to proceed with board-level changes, an annual general meeting was held, board meetings convened and certain changes have been made to the MML board, in keeping with the company’s articles of association. These changes, she noted, include the removal of Drakulich from the board as a result of his ineligibility due to age. Drakulich, she added, has also been removed as CEO, effective Wednesday, February 10.
But in the continuing legal saga affecting the company, the bondholders, the trustee and the Office of the Supervisor of Insolvency may first have to determine who is recognised as legally constituting Mystic Mountain’s management and board. It’s understood that documents have been filed with the Companies Office of Jamaica by the Jamaican shareholders to remove RFA-named directors from the MML board.
Drakulich told the Financial Gleaner on Thursday that he remained in charge of day-to-day operations of the attraction and refuted the RFA assertions on the legality of the AGM and board meetings since November, contending that meetings held digitally, including by telephone, require the prior consent of all directors, which he said was not given. The legality of the meetings and his purported firing as chairman, director and CEO are being challenged in court, he said.
“I remain chairman, director and CEO until removed legitimately by due process of good corporate governance and not the smoke-and-mirrors tactics of foreign shareholders intent on wrestling the management and control of Mystic Mountain from Jamaican hands by calling inquorate board meetings and an illegitimate AGM,” said Drakulich.
He contends that since the Supreme Court gave RFA the go-ahead to make the board-level changes in November, given its majority stake in Karibukai, the representatives of the parent company have failed to show up in person in Jamaica to convene board meetings or an annual general meeting with the appropriate quorum. As such, he said, RFA purporting to have reconstituted the company is the subject of continuing court action.
In December, rating agency CariCRIS downgraded MML’s bond to ‘D’, or default status.