The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar has been told to push the opening date for one of its hotels back by five months to April 1, 2015, with the operator branding the projected December deadline as “not accurate”.

The latest revelation questioning the developer’s repeated assurances that the $2.6 billion Cable Beach project will open on time comes from new documents filed by Morgans Hotel Group Management, the Mondrian operator, in the two sides’ dispute over their resort management agreement.

A May 8, 2014, affidavit sworn by Christina Hassan, Morgans’ senior vice-president and associate general counsel, alleged: “I have been informed and believe that, based on the current status of the hotel and recent discussions between representatives of Morgans Management and Baha Mar, the original projected opening date of December 1, 2014, as set forth in the hotel management agreement, no longer reflects a reasonable date by which the hotel could be ready to open.”

Arguing that this had no bearing on Morgans’ decision to terminate the hotel management deal, Ms Hassan said the operator sent a notice to Baha Mar on April 30 “seeking modification of the projected opening date of the hotel to the more accurate date of April 1, 2015”.

Ms Hassan alleged that under the hotel management agreement, both sides were supposed to agree a new opening date after talks, but Baha Mar had not even acknowledged receiving Morgans’ April 30 letter.

That document, signed by Morgans’ chief financial officer, Richard Szymanski, said: “Morgans Management hereby advises Baha Mar that based on the current status of the hotel and recent discussions between Morgans Management and Baha Mar, Morgans Management believes that the projected opening date of December 1, 2014, is not accurate and that the projected opening date should be modified to April 1, 2015.”

Robert Sands, Baha Mar’s senior vice-president of external and governmental affairs, reiterated yesterday that the developer “anticipates opening by year-end”.

Speaking to Tribune Business after being informed by this newspaper about Morgans’ latest legal filings in the New York State Supreme Court, Mr Sands said it was in the company’s “best interests” to co-operate with Baha Mar.

“The only comment we’re going to make on this is that it’s in Morgans’ best interests to work together with Baha Mar with respect to Morgans’ involvement with Baha Mar,” Mr Sands told Tribune Business.

“Baha Mar anticipates opening by year-end, and we’ll be one of the world’s leading destinations with a portfolio of hotels operated by Baha Mar and other leading brands.”

However, the latest allegations by Morgans will likely intensify speculation and concerns over whether Baha Mar will hit its target 2014 opening date, and if the associated 5,000 hirings and spin-off entrepreneurial opportunities for Bahamians will be pushed back by five months.

Any delay to the projected economic impact from Baha Mar materialising will also be of great concern to the Government, as the ‘ripple effects’ will be felt far and wide - including in the Christie administration’s fiscal projections, at a time when it can least afford them.

Morgans’ legal filings, meanwhile, said it and Baha mar had failed to agree a new opening date for the Mondrian at Baha Mar.

The date is important, in the context of the two sides’ legal dispute, because a revised opening timeline would push back the ‘three stage payment’ dates when the $10 million in ‘key money’ has to be paid by Morgans to Baha Mar.

Tribune Business reported last month how the dispute relates to Baha Mar’s failure to fulfill certain conditions contained in a July 31, 2011, hotel management agreement with Morgans.

In particular, the 20-year agreement for Morgans to provide “direction, management and supervision” of the Mondrian property required that Baha Mar obtain a “non-disturbance agreement” from its financiers within six months of the deal’s signing.

Such an agreement, which Baha Mar had to obtain from the China Export-Import Bank, its multi-billion dollar lender, would have allowed Morgans to continue uninterrupted management of the Mondrian even if the developer defaulted and the Chinese institution had to foreclose.

“Baha Mar failed to obtain a non-disturbance agreement or to inform Morgans Management of its failure to do so within six months of the date of the Hotel Management Agreement,” Morgans alleged.

“Instead, Baha Mar repeatedly assured Morgans Management that it would obtain such an agreement and requested additional time to do so.”

New documents filed by Morgans indicate increasingly fevered efforts by Baha Mar to deliver a satisfactory non-disturbance agreement to it after it gave notice on March 26, 2014, that it was terminating the hotel management agreement.

Viana Gardiner, the Government’s former director of trade prior to joining Baha Mar, was said by an April 25, 2014, letter to have delivered a revised agreement (NDA)to Morgans the day before.

Morgans’ Mr Szymanski said a previous April 15 non-disturbance agreement draft failed to meet expectations, and added: “On April 18, 2014, Morgans Management advised Baha Mar that the April 15 draft was non-compliant and specifically explained the reasons supporting Morgans Management’s conclusions.

“Nevertheless, on April 24, 2014, Baha Mar delivered to Morgans Management the proffered NDA, which not only fails to remedy the defects in the April 15 draft but, in some respects, is even more disadvantageous to Morgans Management than the prior draft.”

Criticising Baha Mar for failing to discuss the proposed changes before the new NDA was delivered, Morgans said the “belated and non-compliant agreement” would not “cure Baha Mar’s default” and the agreement would terminate the following day.

Mr Szymanski added that the April 25 proposal “materially diminishes Morgans Management’s rights and is completely unacceptable”.

He told Baha Mar president Tom Dunlap that the revised NDA eliminated a previous undertaking by China Export-Import Bank not to sell the Mondrian via insolvency proceedings unless the buyer agreed to retain Morgans as the operator.

The April 25 document also prevented Morgans regaining ‘unamortised key money’ from Baha Mar while secured liabilities were outstanding, and prevented the operator from having “recourse” against Baha Mar if it defaulted on its loan.

Mr Szymanski went on to criticise the Baha Mar revisions for having “mutually inconsistent and conflicting provisions that would create significant uncertainties”.

Morgans had previously alleged that Baha Mar “improperly retaliated” for the agreement termination by seeking to then draw down a $10 million ‘Letter of Credit’ that the Mondrian operator had posted with Deutsche Bank Trust Company Americas.

The $10 million represented the key money owed by Morgans to Baha Mar, and which was to be paid to the latter in stages in the run-up to the Mondarin’s opening.

Some $3 million was to be paid 180 days prior to the December 1 opening (June 4, 2014); with a further $3 million paid 90 days out (September 2, 2014); and the final $4 million balance due on the opening date.

Morgans, in its latest legal filings, alleged that Baha Mar’s efforts to obtain the letter of credit gave it extra grounds for terminating the hotel management agreement, and said this breach was “not capable of being cured”.

Mr Szymanski, in his April 25 letter, alleged that Baha Mar’s own attorney “admitted that the reason Baha Mar drew on the letter of credit was to take possession of the funds before the letter of credit was to be released upon the effective date of the termination of the hotel management agreement”.

To help with the transition following Morgans’ departure, Mr Szymanski called on Baha Mar to facilitate the letter of credit’s release and that of Deutsche Bank.

Morgans offered to remain in place for 30 days until the new hotel manager was chosen. However, given that the brand is interested in talking with Baha Mar on a new opening date, all appears not to be lost when it comes to the two sides resolving their differences outside of court and arbitration, and getting back on track.