By NEIL HARTNELL
Tribune Business Editor
Baha Mar has revealed it made an unsuccessful last-ditch effort - on the day it filed for Chapter 11 bankruptcy protection - to persuade its contractor to make the $15 million equity investment necessary to unlock the remaining construction financing.
Thomas Dunlap, Baha Mar’s president, in a July 7 affidavit alleged that the $3.5 billion developer had made every effort to negotiate a resolution to the impasse with its Chinese partners prior to seeking the Delaware Bankruptcy Court’s protection.
He revealed that Baha Mar held off from serving China Construction’s Beijing-based parent with its $192 million damages claim in the UK High Court in a bid to give negotiations a chance.
And Mr Dunlap estimated that of the $30 million in interim financing arranged by Baha Mar’s principal, Sarkis Izmirlian, some $20 million or two-thirds would be paid to Bahamians.
If correct, Mr Dunlap’s affidavit suggests that Baha Mar has not been totally intransigent in seeking to resolve the project’s woes, as some have sought to portray it.
It appears to have been frantically seeking a commercial resolution with both the China Export-Import Bank, its $2.45 billion debt financier, and China Construction America, although they will likely point to Mr Izmirlian’s reluctance to provide a personal guarantee to consummate the proposed resolution that existed in June.
Still, Mr Dunlap’s Supreme Court affidavit confirms that Baha Mar headed for the US Bankruptcy Court over fears that its inability to pay the bills meant it was exposed to its creditors - chiefly the Chinese - moving to foreclose and take over the project.
“With no revenue source, and mounting expenses, the applicants [Baha Mar] were soon confronted with a liquidity crisis,” Mr Dunlap alleged.
“After discussions with the China Export-Import Bank stalled, and discussions with China Construction America and China State Construction Engineering Corporation broke down, the applicants became concerned that their creditors could exercise their remedies.
“The applicants believed that, without funding or a firm completion date, such a result would be extremely disruptive to the project and jeopardise its completion, completely destroying its value to the Bahamas.”
Mr Dunlap said the Boards of Directors for the various 15 Baha Mar companies simply had no choice, given such a scenario, but to “exercise their fiduciary obligations” and move for Chapter 11.
Implying that Baha Mar never gave up on negotiations ‘until the bitter end’, he claimed: “I understand that China Construction Bahamas has been asked repeatedly to fund its equity shortfall, with the last such request being made at the applicants’ Board meeting held on June 29, 2015, the same meeting at which the applicants’ decided to file for Chapter 11 bankruptcy.”
The ‘equity shortfall’ issue is significant, since the China Export-Import Bank was demanding that the project’s shareholders - Baha Mar and China Construction America - invest a further $30 million before it would release the remaining $112 million in construction financing.
The financing covenants for the development require certain debt-to-equity ratios to be maintained, and the extra $30 million - to be split equally between developer and contractor - was essential to this.
Baha Mar has consistently alleged that while it was ready to inject its $15 million, the contractor never made its contribution, thus preventing the project accessing the remaining funds.
Yet despite their differences, Mr Dunlap said Baha Mar had held-off from serving China State Construction Engineering Corporation with the damages claim filed against it in the UK, which includes $30 million to cover alleged poor workmanship by its subsidiary.
“Baha Mar has not yet served the claim form on China State Construction Engineering Corporation,” Mr Dunlap revealed. “It intends to serve the claim form and particulars of claim shortly, absent any prior commercial resolution of Baha Mar’s disputes with China Construction America and China State Construction Engineering Corporation.”
It is unclear whether the $192 million damages claim has now been served, given that the Baha Mar impasse has yet to be resolved. However, the delay indicates that the developer was being flexible in seeking a resolution, using a combination of the ‘carrot’ via negotiations, and the ‘stick’ via litigation.
“At no time until the Board of Directors authorised a Chapter 11 bankruptcy filing on June 29, 2015, was it a foregone conclusion,” Mr Dunlap alleged. “Indeed, the applicants sought alternatives to the filing up to the time of the filing itself.
“To be clear, the decision to file for protection in the US was not motivated by either a desire to exclude the Government of the Bahamas from the process or to defeat the claims of Bahamas-based creditors.”
Baha Mar owes its trade creditors some $123 million in unsecured debt. Of that sum, around $70-$80 million is thought to be owed to a combination of Bahamian contractors and local suppliers.
Mr Dunlap, though, alleged that Baha Mar was “prepared to open, at our expense, a claims processing centre in Nassau.
“The applicants intend for the claims processing centre to be a convenient and simple way for the applicants’ unsecured creditors to seek out assistance filling out and submitting the requisite proofs of claim and other forms necessary to have their claims properly recognised in the US bankruptcy proceedings,” Mr Dunlap alleged.
“This process will ensure that, once a restructuring plan is submitted to the US Bankruptcy Court for approval, these claims will be considered.
“A claims processing centre in Nassau will also ensure that Bahamians will not need to travel to Delaware to protect their rights.”
Mr Dunlap affirmed that the financing arranged by Mr Izmirlian to provide Baha Mar with working capital through the Chapter 11 proceedings was dependent on the Supreme Court recognising them, and giving them legal effect in the Bahamas.
The Supreme Court will determine tomorrow whether it will grant this recognition, but Mr Dunlap said of the $30 million needed to cover the next 45 days, “approximately $20 million will be paid to Bahamians”.
He added that the $30 million would cover the Melia’s operations and the continued employment of its 1,000 staff, plus the $100,000 per month costs needed to maintain the golf course at Cable Beach.
Of the $9.26 million in cash held by Baha Mar at end-June, most of this sum was subject to liens by Citicorp International as the agent for some of its lenders.
Mr Dunlap alleged that of the $9.26 million, some $3.5 million was ‘cash on hand’, while $3.26 million was to support the Melia. Another $2.5 million was held to honour and pay customer deposits.