By NEIL HARTNELL
Tribune Business Editor
Sarkis Izmirlian’s near-$15 million advances to Baha Mar were last night branded “a desperate attempt” to keep the Chapter 11 case alive, with the project’s contractor accusing him of attempting to “manufacture” connections to the US.
China Construction America’s (CCA) Bahamian subsidiary, in its latest salvo in the Delaware courts, returned to its contention that Baha Mar and Mr Izmirlian had made “bad faith attempts to improperly use the Chapter 11 process” to their advantage and the detriment of all creditors.
In particular, it argued that Baha Mar had sought to “manufacture” the necessary physical presence and asset links that would give the US Bankruptcy Court legal jurisdiction over its 14 Bahamian-domiciled companies.
CCA Bahamas said debtor companies must prove that monies in their bank accounts belong to them, yet alleged that Baha Mar’s parent entity transferred monies from the Bahamas to its affiliates’ US facilities in a bid to “manufacture” US legal jurisdiction over them.
The contractor, branding Baha Mar’s Chapter 11 legal filings as “ill-conceived from the outset”, said its hopes of a successful reorganisation under Chapter 11 had been further undermined by the Supreme Court’s refusal to recognise the Delaware case - and give it legal effect - in the Bahamas.
Baha Mar has consistently argued that seeking US Chapter 11 bankruptcy protection was the only option open to it in seeking to achieve the twin objectives of restructuring and the Izmirlian family retaining control.
The developer and Mr Izmirlian also saw the process as a way to concentrate minds at CCA Bahamas and its $2.45 billion debt financier, the China Export-Import Bank, and get them to the negotiating table to work out a financial package/timetable for Baha Mar’s completion.
However, Tribune Business understands that Baha Mar’s Chinese partners are suspicious that it initiated the Chapter 11 process as a way to relieve itself of an onerous debt burden.
The China Export-Import Bank already holds $2.45 billion in security over Baha Mar’s Cable Beach resort and real estate assets, a figure that could rise to $2.65 billion if the last proposed financing package for the project’s completion is approved.
That figure is higher than the $2.3-$2.4 billion debt load that ultimately proved unsustainable and sank Kerzner International’s ownership of Atlantis.
This ultimately means that Baha Mar, a new, unproven commodity at best when it opens, will have to outperform the proven Atlantis to service the interest and principal payments to the China Export-Import Bank.
Several well-placed sources suggested to Tribune Business yesterday that Mr Izmirlian, recognising that Baha Mar’s debt load was unsustainable, was using the Chapter 11 process as leverage to negotiate a more favourable deal with the Chinese bank.
Dionisio D’Aguilar, a Baha Mar director, has repeatedly told Tribune Business, though, that Mr Izmirlian has always pledged to the China Export-Import Bank that he will make it “whole” in every conversation between the two.
Still, CCA Bahamas yesterday accused Baha Mar of “a last-ditch attempt to shop for their preferred forum, retain control over the Baha Mar project and gain a tactical litigation advantage” while ignoring what was in everyone’s alleged best interests - proceeding with the Bahamian winding-up petitions.
“The debtors’ inability to adequately fund their Chapter 11 Cases, the strong Bahamian interests at stake, the viability of alternative insolvency proceedings in the Bahamas, and the lack of connections with the US, compel dismissal of these Chapter 11 cases,” CCA Bahamas alleged.
“This court should not entertain the debtors’ bad-faith attempts to improperly use the Chapter 11 process to a gain tactical litigation advantage and to retain control over a project lacking US ties (despite the debtors’ best efforts to manufacture such connections).
“CCA Bahamas, therefore, respectfully requests that this Court reject the debtors’ attempts to misuse the US bankruptcy system by dismissing these cases and allow the Bahamian courts to preside over these proceedings. These proceedings are, at their core, about the Bahamas.”
CCA Bahamas argued that Baha Mar was attempting to use bank account assets to prove the connection of its 14 Bahamian-domiciled companies to the US, yet had fallen “woefully short” of proving ownership of the funds they contain.
Funds were deposited into their US accounts by the Baha Mar parent as “part of last-minute ‘contingency planning’, according to the developer, prior to the Chapter 11 filing.
Yet CCA Bahamas countered: “The real reason for the eve-of-bankruptcy transfers in these cases was the attempted manufacturing of jurisdiction.
“The manufacturing was not complicated, and consisted of opening US bank accounts for the Bahamian debtors, funding them with a small sum of money from Baha Mar Ltd, and asserting eligibility as a result.
“Though the debtors provide no documentary evidence with respect to the time when their bank accounts were opened, they admit to opening US bank accounts for seven of the Debtors ‘in the weeks prior to the petition date’.
“Each of these seven accounts was opened at J.P. Morgan, labelled as a simple ‘depository account’, and funded with around $10,000. The deposits were made just days before the petition date, with the money coming from Baha Mar Ltd’s Bahamian account.
“Simply put, these accounts were opened and funded with Bahamian money to create the appearance of US assets for seven debtors with no other US ties.”
CCA Bahamas described Mr Izmirlian’s $14.936 million advances to Baha Mar, in a bid to cover salaries and professional fees, as “a temporary fix” after the $80 million financing facility he attempted to put in place to cover the developer’s Chapter 11 operational costs was blocked by the Supreme Court’s ruling.
“The funding of three successive tranches of limited amounts of money by the DIP lender [Mr Izmirlian] is a desperate attempt to keep these cases afloat even if the debtors know all too well that a permanent solution for a DIP financing cannot be found,” CCA Bahamas alleged.
“The proposed DIP financing was predicated on obtaining recognition and approvals, and the current limited financing cannot satisfy the debtors’ financial needs. Thus, the debtors’ temporary fix for their DIP financing does not ensure the availability of the financing that is actually needed - a financing without which reorganisation under Chapter 11 is impossible.”