Luxury Anguilla resort faces bankruptcy

The owners of the Viceroy resort on the Caribbean island of Anguilla are preparing to put the posh getaway into bankruptcy court in a deal that would hand the hotel suites and villas to real-estate mogul Barry Sternlicht's Starwood Capital, people familiar with the matter said.

The Viceroy, owned by a partnership of Viceroy Hotels & Resorts and Lubert-Adler Real Estate Funds, plans to file for Chapter 11 bankruptcy protection in Delaware as soon as Thursday, these people said. Starwood, the resort's largest secured creditor, would then aim to take over the Viceroy, which has hosted celebrities such as Paul McCartney, Ellen DeGeneres, John Mayer and Sandra Bullock.

The Viceroy's current owners got a $358 million mortgage from Citigroup Inc. in 2006 with a goal of attracting rich vacationers to luxurious amenities that included personal pools for each villa. The developers described it as an "exquisite rendition of the residential resort concept" on Anguilla.

But bad weather, labor difficulties and other construction problems caused the first part of the Viceroy to open more than a year behind schedule, in August 2009. The delay, in turn, allowed many villa buyers to refuse to close their purchases. Now, the developers have a completed resort valued at less than the debt owed on it. E

nter Mr. Sternlicht, who has a plan to save the Viceroy through a complex maneuver that straddles both U.S. and Anguillan law. The laws of 36-square-mile Anguilla won't allow Starwood, which purchased the Viceroy's mortgage at a steep discount in October, to foreclose on the resort. Instead, the 166-room Viceroy plans to file for bankruptcy protection and then ask a U.S. judge to approve an auction in Anguilla, which will be open to all comers.

Source: Wall Street Journal