The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $80 million financing facility created by Sarkis Izmirlian to cover Baha Mar’s Chapter 11 operating expenses may have effectively been ‘killed at birth’ by the outcome of yesterday’s Supreme Court hearing, Tribune Business can reveal.

Justice Ian Winder adjourned Baha Mar’s application for recognition of the Delaware Bankruptcy Court’s orders, which would give them legal effect in the Bahamas, until next week Tuesday, July 7.

This means that none of the protections and reliefs that Baha Mar obtained from the Delaware court are in effect - something that could prove fatal, in particular, to the financing facility put in place by its principal.

Tribune Business revealed on Thursday that the $80 million facility would fall into default if the Bahamian Supreme Court fails to extend “the automatic stay to secured and unsecured creditors in the Bahamas within seven says of the petition date”.

That petition date was Monday, June 29, and Justice Winder’s decision to adjourn Baha Mar’s application to Tuesday means any extension of that “automatic stay” will take place at least EIGHT days after the “petition date” - not seven as required.

This, according to the Delaware court orders, puts the $80 million financing arranged to carry Baha Mar through the Chapter 11 period in default before it has even begun.

This, in turn, creates a major doubt as to whether Baha Mar will be able to finance its operations through the Chapter 11 period, especially given that it needs some $30 million of that sum to ‘make it through’ until the August 3, 2015, court hearings.

Robert Sands, Baha Mar’s senior vice-president of external and government affairs, declined to comment when asked by Tribune Business whether the Supreme Court’s decision yesterday effectively rendered the $80 million financing ‘stillborn at birth’.

However, Roy Sweeting, the Glinton, Sweeting & O’Brien attorney and partner, who represented Baha Mar at yesterday’s Supreme Court hearing before Justice Winder, was certainly alive to the urgency - and potential dangers - of the situation.

He had warned that an adjournment would cut close to the seven-day deadline for Baha Mar to get the approved extension from the Supreme Court for the $80 million debtor-in-possession (DIP) financing arranged by Mr Izmirlian to take effect.

Justice Winder’s decision also has several other potential negative ramifications for Baha Mar. For starters, there is nothing to prevent the developer’s utility providers such as the Bahamas Electricity Corporation (BEC), to which it owes at least $19.5 million, shutting off power and other supplies to the developer and its one operating property, the Melia Nassau Beach Resort.

While that is unlikely to happen due to the impact on the Bahamas’ tourism reputation, Baha Mar is also prevented - at least for the moment - from paying a collective $3.5 million to its critical trade suppliers.

Tribune Business revealed on Wednesday how Baha Mar had warned that its laundry services provider would be forced to close, with a “catastrophic” effect on the Melia, if the developer was unable to pay a $1 million bill that was outstanding.

Baha Mar also owes over $1 million to its key food suppliers, such as Bahamas Food Services, and $500,000 bills to its drinks and generator fuel suppliers.

Currently unable to make any payments to these key suppliers, the possibility of them cutting Baha Mar off is a real one given that there is no assurance they will be paid while the developer is in Chapter 11.

Little was said yesterday about these problems, and the resulting plight of many of Baha Mar’s Bahamian vendors as a result of the Supreme Court hearing, as the focus was put squarely on the fate of Baha Mar’s 3,000-plus employees.

But the Supreme Court hearing, and aftermath, showed that Baha Mar’s relations with the Government are now as frosty as those with its Chinese partners, the contractor and China Export-Import Bank.

And there were indications that the Government and Chinese may be working together, in some respects, given that their legal arguments advanced yesterday had some notable similarities.

For instance, both are arguing that the Bahamas should be the prime judicial jurisdiction for deciding the issues raised by Baha Mar’s Chapter 11 filing, not Delaware, given that all bar one of the 15 companies involved are domiciled here.

And both the Government and China Export-Import Bank yesterday slammed Baha Mar for “ambushing” and blindsiding them with the Chapter 11 move, given that negotiations to resolve the dispute over the $3.5 billion development were ongoing.

The two were successful in persuading the Supreme Court that their respective cases should be heard before any decision is taken to recognise, and give effect to, the Delaware Bankruptcy Court’s orders in the Bahamas. This removes some of the advantage Baha Mar gained from ‘the surprise’ achieved by its Chapter 11 filings.

Both the Government and China Export-Import Bank, the latter of which is Baha Mar’s largest secured creditor via its $2.4 billion debt financing, are anxious to pull the case back to the Bahamas. Baha Mar is likely to have considered its prospects of legal success to be better in Delaware, rather than the Bahamas.

Allyson Maynard-Gibson, the attorney general, said Baha Mar’s staff should not be used as “pawns” in the Chapter 11 battle.

And she railed against Delaware being the main legal forum for deciding the issues raised by the developer’s bankruptcy protection bid.

“It is important that the public be made aware that the orders obtained unilaterally by the Baha Mar entities from the US Bankruptcy Court in Delaware were obtained on the basis that matters profoundly affecting the Government and people of the Bahamas will be subject to adjudication in the US,” she said.

“This would have serious and far-reaching implications for the Commonwealth of the Bahamas as a sovereign nation.”

She added: “The Government feels very strongly that resolution of the disputes that have delayed the project should occur in the Bahamas, subject to adjudication (to the extent that they cannot be resolved consensually) by Bahamian courts, consistent with the sovereignty of the Bahamas.

“The Office of the Attorney General and the Government’s international lawyers are therefore examining options that will ensure that the courts of the Bahamas are front and centre in this matter.

“This would not preclude ancillary orders being sought from foreign courts should such orders be needed – but as a matter of high constitutional principle and in the interests of national sovereignty, it cannot be the other way around.”

Not surprisingly, Baha Mar disagreed. In a statement issued yesterday, it described as “alarming” the Government’s objection to financing its staff payroll via Mr Izmirlian’s $80 million facility.

Adding that it was “extremely concerned and disappointed” by the Supreme Court decision, Baha Mar said: “This adjournment unfortunately makes it impossible at this time to act on the US court approvals we received yesterday, which would allow us, among other things, to pay salaries and benefits for Baha Mar citizens as well as pay ordinary course suppliers and vendors for goods and services post the commencement of the Chapter 11 process.

“The adjournment has very troubling implications for both the Chapter 11 process and our efforts to position Baha Mar to complete construction and open successfully.”

The developer added: “Extensive efforts to reach a compromise with our lender and our contractor have been fruitless, and if we are frustrated in taking advantage in the Bahamas of the US Chapter 11 process for very much longer, drastic and regrettable steps, including substantial staff reductions, will have to be taken.”

Apart from the outcome court actions taking place in three countries, much of Baha Mar’s fate lies in the intentions of the various parties involved, and the ‘end games’ they are seeking to achieve.

It remains to be seen, for example, whether the Government and Chinese will seek to oust the Izmirlian family from Baha Mar and try to find an acceptable new partner, such as Genting.

And, in putting Baha Mar into Chapter 11, a move that takes months to plan and pull-off, it is likely Mr Izmirlian had a ‘Plan B’ option in mind, such as a new equity partner and financier that would complete construction and get the project open.