The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar has accused its main contractor of owing $2.373 million in unpaid rent for use of the former Crystal Palace as offices and accommodation for its staff.

The $3.5 billion developer, in filings with the Delaware Bankruptcy Court last week, also confirmed that plans to ‘fumigate’ the Crystal Palace were merely a ruse to get China Construction America employees out of the property in case there was an adverse reaction to Baha Mar’s Chapter 11 bankruptcy protection filing.

The claims, while mild in comparison to other allegations Baha Mar is making, will again raise the temperature between the two sides and potentially further complicate efforts to negotiate a resolution to the mega resort’s debacle outside the court room.

Talks between Baha Mar and China Construction America, who will be joined by a Bahamian government team and the project’s $2.45 billion lender, the China Export-Import Bank, are set to begin in China today.

However, Baha Mar is alleging that its contractor owes unpaid rent for use of the Crystal Palace by 140 on-site management staff and “hundreds of rank and file construction workers”.

“The debtors [Baha Mar] charged China Construction America a monthly fee based on agreed rates and the number of rooms occupied, which fees China Construction America paid in full through October 2014,” Baha Mar alleged.

“As of the petition date [June 29], hundreds of China Construction America employees continued to work and/or live in these Crystal Palace facilities, for which China Construction America was in arrears to the debtors dating back to November 2014 in an aggregate amount of $2.373 million.”

China Construction America will likely argue that this sum pales into insignificance when set against the $140 million in unpaid construction claims it says Baha Mar owes.

The developer is disputing this sum suggesting it is almost half this amount or some $72.6 million. This is why Baha Mar is anxious to obtain an order from the Delaware court authorising it to examine China Construction America, and obtain all the key construction documents related to the $3.5 billion project.

Apart from believing these documents “will support disallowance, subordination and/or set off any amounts” that China Construction America is claiming under that $140 million, Baha Mar feels they will also support its claim for $192 million in damages against the contractor’s Chinese parent in the UK high court.

Meanwhile, Baha Mar said it beefed up security and removed personnel from the Crystal Palace and project site to prevent any retaliation or disruption as a result of the Chapter 11 filing.

“To forestall any potential confrontations with China Construction America employees, and to avoid the potential damage to the debtors that could arise from premature leakage of the debtors’ plans to file a Chapter 11 petition, Baha Mar requested the premises be vacated by informing personnel that the premises may be fumigated,” the developer admitted.

Sarkis Izmirlian, Baha Mar’s chairman and chief executive, in a message to more than 3,400 staff over the weekend, gave every indication that Chapter 11 protection, then reorganisation, was his preferred route for resolving the project’s woes.

While indicating he was willing to give negotiations a chance, Mr Izmirlian warned: “This is a serious situation and much is at stake, not just for Baha Mar but for the greater Bahamian community and economy.

“As we have repeatedly expressed, the Chapter 11 process is essential for moving the project forward and ensuring that we can avoid further difficulties.

“As I have said before, if we cannot reach an agreement with the other parties we will have to make some extremely difficult decisions that would include workforce reductions. All of my efforts are on entering negotiations that, if the other parties are willing, will enable us to avoid that path.”

Mr Izmirlian warned that until the Bahamian Supreme Court recognised the Chapter 11 proceedings, giving them and the Delaware court’s orders legal effect in the Bahamas, Baha Mar was unable to pay both its staff and vendors/trade suppliers.

“In addition, we are seeking payment from other sources that owe Baha Mar money that would permit us to meet these obligations,.” he added.

Mr Izmirlian added that he filed for Chapter 11 bankruptcy protection in Delaware simply because it offered protections and reliefs that were not available in the Bahamas.

He emphasised that had such a filing been attempted here, the $3.5 billion project would have been placed straight into winding-up and liquidation. A more likely scenario, though, would have been for the China Export-Import Bank to take over ownership itself, or appoint a receiver to find a buyer.

“That would mean Baha Mar would be liquidated, all the employees immediately terminated, and suppliers paid virtually nothing for outstanding debts,” Mr Izmirlian said of such an application to the Bahamian courts.

“There would be no opportunity for Baha Mar to move forward. In contrast, the Chapter 11 process under the US Bankruptcy Code protects Baha Mar and all of its parties in interest by providing an opportunity to restructure, instead of liquidating, and provides an opportunity to work with other parties to reach a mutually agreeable approach that will allow us to move forward.”

He added that other non-US companies, such as Prisa of Spain, TMT Group, and Maxcom Telecom of Mexico, had all used Chapter 11 proceedings to restructure.