NEW YORK (Reuters)â€”The U.S. government has objected to the reorganization plan of a group of bankrupt hotels owned by hedge fund Paulson & Co., saying it was an attempt to dodge taxes.
The MSR Resort group’s plan to sell itself to the Government of Singapore Investment Corp. creates tax liabilities of $331 million with no recourse for the Internal Revenue Service to recover them, Preet Bharara, U.S. attorney for the Southern District of New York, said in his objection filed on Wednesday [Jan. 9].
Mr. Bharara also objected to MSR seeking an injunction that bars the government from reviewing the tax consequences of the plan. The government has not had an opportunity to examine whether the plan is motivated solely to avoid taxes, which would disqualify it, he said.
The Government of Singapore Investment Corp. bid $1.5 billion for the hotels group, including the Arizona Biltmore Resort & Spa in Phoenix, Ariz., and Grand Wailea Resorts Hotel & Spa in Hawaii, in August. GIC is a sovereign wealth fund that manages Singapore’s foreign reserves and is a large real estate investor in the United States. The fund is a lender to MSR and made an offer for shortly after the group filed for bankruptcy protection.
The hedge fund, headed by John Paulson, bought the hotels from a Morgan Stanley real estate fund in January 2011 and put them into bankruptcy a month later, saying it planned to reorganize them.
Morgan Stanley Real Estate purchased the five hotels and three others in 2007 for about $4 billion. The hotels filed with $2.2 billion in assets and $1.9 billion in debt.
The case is In Re: MSR Resort Golf Course, case No. 11-10372, in U.S. Bankruptcy Court, District of Delaware.