By NEIL HARTNELL
Tribune Business Editor
The Melia Nassau Beach Resort can “barely” generate enough cash flow to finance its own operations - an admission that was yesterday seized upon by Baha Mar’s contractor.
China Construction America (Bahamas), in further legal filings to support its bid to dismiss Baha Mar’s Chapter 11 bankruptcy protection case, said the admission contradicted the developer’s earlier suggestion that the Melia could help finance its other operations while it restructures.
The ‘admission’ was made by Tom Dunlap, Baha Mar’s president, during testimony given under cross-examination by CCA Bahamas’ attorneys as part of the Chapter 11 ‘discovery’ process, where all parties exchange relevant documents and information.
According to a transcript of Mr Dunlap’s testimony, which was filed with the Delaware Bankruptcy Court yesterday, the Baha Mar president was asked whether cash flow generated by the Melia could help to finance the developer’s other resort properties.
Having confirmed that the Melia property was “self-sustaining” financially, Mr Dunlap replied: “In theory they [Melia funds] could be, but it is not self-sustaining in a robust enough fashion that it could throw off excess cash.”
The Baha Mar president’s interrogator replied: “So the money it [the Melia] generates is sufficient to maintain its operations?”
To which Mr Dunlap replied: “Barely.”
CCA Bahamas yesterday took that admission as proof that Baha Mar has no financing to fund its operations while in Chapter 11 other than the $80 million Debtor-in-Possession (DIP) facility that its principal, Sarkis Izmirlian, has attempted to put in place.
His efforts to-date, though, have been blocked by the Bahamian Supreme Court’s decision not to recognise the Chapter 11 proceedings in the Bahamas, or enforce the stays preventing creditors taking action against the developer. Recognition by the Supreme Court was one of the conditions that had to be met for the $80 million facility to be unlocked.
“Except for the DIP, the debtors do not have any other sources of income to fund these cases,” CCA Bahamas alleged last night.
“The project does not generate any income, and the debtors’ reference to the Melia resort as a source of cash is belied by the facts.
“The Debtors concede that the Melia resort cannot generate income for these debtors, and that the revenue the Melia resort derives from its operations barely covers its expenses.”
Mr Dunlap, meanwhile, also agreed under examination by CCA Bahamas’ attorneys that approvals from the Bahamas Investment Authority (BIA) and Central Bank of the Bahamas would be necessary to activate the $80 million DIP facility.
“The interim DIP order also required the debtors to obtain approvals from the Central Bank of the Bahamas and the Bahamas Investment Authority,” CCA Bahamas said.
“The Supreme Court, however, denied the debtors’ recognition application, and neither the Central Bank of the Bahamas nor the Bahamas Investment Authority gave the required approvals.”
Mr Izmirlian has to-date advanced $14.936 million to fund Baha Mar’s ongoing costs, via a series of three payments through late July and early August that are secured via promissory notes issued by the only non-Bahamian company in the group, Northshore Mainland Services.
Yet CCA Bahamas pointed out that Baha Mar itself had said $80 million in financing was required - something that was also conceded by Mr Dunlap under examination.
Asked how Baha Mar was going to finance its ongoing operations during Chapter 11, and downsize to a ‘skeleton’ staff if necessary, Mr Dunlap said: “That is probably the million dollar question that is on the table right now.
“The plan was built around the DIP, and the first increment of the DIP up to $30 million.”
With the Supreme Court refusing to approve the $80 million DIP facility, Mr Dunlap said Baha Mar had been forced to operate on “a day-to-day basis and, I guess, think on our feet”.
The Baha Mar president said the project had so far received funding from Mr Izmirlian and the Government, which has used some of the $21 million due to the developer on the West Bay Street re-routing to pay the salaries of the developer’s Bahamian staff.
Asked whether Baha Mar could finance the downsizing to a ‘skeleton’ staff, and maintain the properties, without the $80 million DIP facility, Mr Dunlap initially responded: “I would be speculating on what we can and can’t do going ahead.”
When pressed, he added: “It is my understanding that there is no permanent funding programme made available at this time and, therefore, we are on somewhat of a day-to-day, week-to-week basis as we evaluate our funding needs on an ongoing basis and evaluate options on an ongoing basis to address those.”
CCA Bahamas yesterday reminded the Delaware Bankruptcy Court that there was still no DIP financing in place some six weeks after Baha Mar filed for Chapter 11 protection.
“The Debtors cannot restructure their business in the US given their failure to obtain the requisite approvals for the DIP financing. Successfully reorganising without a DIP financing would be impossible in these cases,” CCA Bahamas argued.
“Although the debtors briefly managed to obtain temporary funding through successive waivers from the DIP lender [Mr Izmirlian], these stop-gap measures do not alleviate the concerns raised by their failure to obtain Bahamian court recognition and governmental approvals for the DIP financing.
“The uncertainty surrounding the Debtors’ DIP financing is abundantly clear as the debtors sought yet another continuance on the DIP financing hearing.”
Pointing to the numerous winding-up petitions filed against Baha Mar by the Bahamian government and its agencies, the contractor added: “Thus a viable path to reorganisation in the Bahamas is available and is already in progress.
“The Bahamian proceedings will expedite completion of the project and serve the best interests of the creditors and the estates.”