Virgin Islands to Acquire Resorts via $465M High-Risk Muni Sale

Fortress Investment Group announced a $465 million muni-bond deal to sell two resorts on St. Thomas in the US Virgin Islands. The deal will allow the territory to eventually acquire the properties through proceeds from the bond sale according to reports. The transaction is set to take place in the week of December 8, with Piper Sandler & Co. managing the bond offering according to the announcement. The nonprofit Community Finance Corp. will acquire Frenchman's Reef, which includes a 392-room Westin and a 94-room boutique hotel, through the Virgin Islands Hotel Development Financing Corp. as detailed in the filing.

The muni bonds are unrated, placing them in the riskiest sector of the municipal market. Offering documents highlight several risks, including hurricanes, economic downturns, and competition from other hotels. Proceeds will also fund about $70 million in reserves for capitalized interest, debt service, and capital expenditures. The properties operated at 65% occupancy in 2025 and generated $19 million in gross operating profit on $82 million in revenue through October according to financial data.

The sale is part of a broader infrastructure rebuild in the U.S. Virgin Islands following two category-5 hurricanes. Governor Albert Bryan Jr. emphasized the need for a skilled workforce and voiced concerns about Caribbean nations offering "citizenship by investment" (CBI) programs, which he argues could jeopardize regional security. Bryan advocates for visa-free access to the U.S. for nations that respect the sanctity of the passport according to his statement.

New Fortress Energy, a separate entity, faces growing challenges following the early termination of a high-margin contract in Puerto Rico. The company reported a cash decline of over $400 million to $145.2 million in Q3 2025. Despite receiving $150 million from Energos Infrastructure, NFE skipped a $163.8 million interest payment on its 12.00% 2029 Senior Secured Notes.

In contrast, SKYLINE, a hotel and resort operator, reported mixed results in its Q3 2025 financials. Revenue from hotels and resorts dropped 32.7% due to the sale of 11 Courtyards and lower performance at the Hyatt hotel. However, the Autograph hotel's reopening led to a 15.4% increase in same-asset revenue. Adjusted EBITDA rose to $4.2 million from $1.6 million in Q3 2024, but net financial expense nearly tripled to $25.6 million.

What This Means for Investors

Investors should closely monitor the risks associated with the muni-bond deal, including market and operational uncertainties. The Virgin Islands' plan to eventually acquire the properties may appeal to long-term investors, but the unrated bond status suggests higher volatility. Meanwhile, New Fortress Energy's financial struggles highlight the need for caution, particularly for common shareholders who may see significant losses.

The Caribbean region remains under heightened scrutiny from U.S. military activity. Defense Secretary Pete Hegseth and Joint Chiefs Chair Gen. Dan Caine are visiting the region to discuss security and defense partnerships. The U.S. has increased its presence in the Caribbean, citing drug trafficking as a primary concern. Recent military strikes on alleged drug boats have drawn criticism from human rights groups and some regional leaders.

Governor Bryan's stance on CBI programs aligns with broader international concerns about passport sales and potential security risks. The U.S. and other nations have raised alarms over inadequate due diligence in some CBI schemes, which could facilitate illicit activities such as money laundering and terrorism. Bryan's advocacy for nations like St. Vincent and the Grenadines, which oppose CBI programs, may influence future U.S. immigration policies according to his public statements.

Risks to the Outlook

The U.S. Virgin Islands' economic recovery hinges on a diverse workforce and ongoing infrastructure projects. While the tourism sector shows promise, with record low unemployment, the territory faces challenges in attracting enough laborers. Bryan's emphasis on visa-free access for non-CBI nations reflects a strategic move to bolster the local economy while addressing regional security concerns.

New Fortress Energy's situation remains precarious despite recent liquidity measures. The company's decision to skip an interest payment could trigger further financial distress and investor skepticism. With mounting debt and operating losses, NFE's ability to navigate its current challenges will depend on its strategic refinancing and operational adjustments according to financial analysts.

For the muni-bond deal, risks such as natural disasters and economic downturns remain critical for investors to consider. The offering's success may also depend on the performance of the hotels post-sale and the ability of the U.S. Virgin Islands to maintain economic stability. As the bond sale approaches, investors should keep a close eye on market conditions and potential developments in the Caribbean region.