The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s Chinese partners yesterday received backing from another creditor in their bid to dismiss the developer’s Chapter 11 case, on the grounds that it is now “virtually impossible” for the $3.5 billion project to re-organise under the Delaware court.

Stafford-Smith Inc, a Michigan-based foodservices equipment supplier, alleged that Justice Ian Winder’s refusal to recognise the Chapter 11 proceedings in the Bahamas meant that the Delaware Bankruptcy Court would be unable to administer Baha Mar’s assets.

Echoing the position taken by both the China Export-Import Bank, and China Construction America, the US company alleged that Baha Mar had “sacrificed” the speedier and better protection offered to all parties by Bahamian insolvency proceedings.

Stafford-Smith instead alleged that Baha Mar had “improperly used” the Chapter 11 process in a bid to ensure it and its principals, the Izmirlian family, remained in control of the development.

“The Project is one of the largest of its kind in the Western Hemisphere, and has significant implications for the economy and people of the sovereign nation of the Bahamas,” Stafford-Smith alleged in yesterday’s filing.

“The rapid completion of the project is critical for all parties-in-interest and is the only path to maximise the value of these estates’ assets.”

It added: “The Chapter 11 Cases do not belong in this court; they belong in the courts of the Bahamas.

“Although Bahamian insolvency proceedings would provide the most expeditious process and the best protection for all parties’ interests, the debtors [Baha Mar] have sacrificed these interests by seeking to improperly use the Chapter 11 process to retain control over a project which has no connection to the United States.”

Stafford-Smith alleged that Baha Mar’s justification for going the Chapter 11 route to restructure and complete the resort was undermined when the Supreme Court on July 22 refused to give those proceedings legal effect in the Bahamas.

“The fact that the Bahamas Supreme Court has ruled that it will not recognise the jurisdiction of this court as to property and assets in the Bahamas makes it virtually impossible for this debtor to reorganise in a Chapter 11, as this Court may not be able to aid in the administration of the debtor’s principal assets, including the project, which are all located in the Bahamas,” Stafford-Smith alleged.

Whether Stafford-Smith’s support for the Chinese position will make any difference to how the Delaware Court rules on August 17, when it hears their bid to dismiss Baha Mar’s Chapter 11 filing, is unlikely.

However, yesterday’s filing shows that Baha Mar’s several thousand creditors are split over whether Delaware or the Bahamas should be the main legal jurisdiction for resolving the dispute.

Tribune Business was told that little progress towards a negotiated out-of-court settlement between Baha Mar and the Chinese was made over the weekend.

Dionisio D’Aguilar, a Baha Mar director, said the developer’s expatriate upper and middle management executives were likely starting to “melt away” as a result of the Government’s refusal last week to pay their salaries.

“The biggest crisis is those senior managers are melting away,” he told Tribune Business. “They’ve not been paid, and are beginning to look elsewhere.”

Mr D’Aguilar said that by successfully opposing recognition of the Chapter 11 proceedings in the Bahamas, the Government had effectively committed itself to paying the salaries of Baha Mar staff.

This was because the failure to recognise the Chapter 11 action blocked usage of the $80 million financing facility put in place by Sarkis Izmirlian, Baha Mar’s principal, part of which had been set aside to pay all staff - not just those who were Bahamian.

Mr D’Aguilar yesterday said the Government’s petition to wind-up Baha Mar, and appoint provisional liquidators, over an alleged $59 million debt was increasingly being exposed as “a distraction”.

He added that the Baha Mar dispute would be closer to resolution had the Government not intervened, and created the likelihood that key management staff will now abandon the developer.

The Government’s winding-up petition will now be heard on August 19-20, dates almost three weeks after the initial July 31 hearing. While this will give all parties to the dispute time to make further progress in negotiations, the new dates hardly smack of urgency on the Christie administration’s part to oust Mr Izmirlian.

Meanwhile, Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, said many small contractors were now being chased by banks and other lenders because they had not been paid for work done on Baha Mar.

“I’ve had conversations with some of these small contractors who are literally hurting bad,” Mr Sumner told Tribune Business. “Most of them borrowed money to do the construction project, pay employees, and they are in a place where they are not able to repay the money.

“The bank is calling because they are behind on their payments, obviously, and cannot get other construction contracts to buy into and get the material to do other jobs. That is causing the Chamber particular concern.”

Apart from Baha Mar’s 2,500-plus employees, Mr Sumner reiterated the Chamber’s concern for Bahamian small and medium-sized businesses - contractors and others - who had not been paid for services and products provided to the developer.

“Many have put out significant capital to secure work at Baha Mar, paid the wages of employees and not received a return on that capital yet.”

Especially problematic is the situation facing Bahamian contractors, other vendors and retail/restaurant tenants who have employed debt financing rather than equity (their own capital resources) to finance their involvement with Baha Mar.

Without payment and/or a return on that capital, they are unable to repay these debts, thus leaving them exposed to the demands of commercial banks and other lenders.

Mr Sumner said the Government and all parties to the Baha Mar dispute needed to “give very careful consideration” as to how the $123 million owed to trade vendors will be settled. That sum does not include the millions owed to Bahamian contractors, which are hidden under the $62.5 million owed to China Construction America.

And, while backing Mr Izmirlian’s suggestion that Bahamian contractors could finish Baha Mar, Mr Sumner said all outstanding sums due would need to be made whole first.