The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian has warned the Government that its plan to appoint a provisional liquidator will “make it impossible” to immediately open and operate a completed Baha Mar, since it will jeopardise key hotel and retail/restaurant tenant relationships.

Mr Izmirlian, in a July 23 letter to Baha Mar’s main financier, directly challenged Prime Minister Perry Christie’s assertion that the Government’s proposed winding-up petition, and appointment of PricewaterhouseCoopers (PwC) as provisional liquidators, would provide the fastest route to the $3.5 billion project’s completion and opening should settlement talks fail.

The letter, addressed to China Export-Import Bank president, Liu Liange, warned that apart from endangering Baha Mar’s key business relationships, the appointment of provisional liquidators may also cost the development millions of dollars in lost residential condominium sales.

“The proposed solution by the Government of the Bahamas of a provisional liquidator is not the best solution for the resort, or the bank,” Mr Izmirlian told Mr Liu.

“This is an extremely complex project with multiple management contracts with major international hotel brands (which owe $52 million in ‘key money’ to the project), multiple leases with retailers, restaurant operators, residential condominium sales, casino operations and so forth.

“Appointing a liquidator at this point is likely to substantially negatively impact or lead to the extinguishment of those relationships, will lead to management upheaval, and will make it impossible to operate the resort in a short timeframe, even if completed.”

In other words, Mr Izmirlian is arguing that the removal of himself and Baha Mar’s top executive management team will cost the development ‘knowledge’ critical to the project’s opening and smooth operational functioning - knowledge the PwC liquidators will be unable to match or replace.

He is also suggesting that the winding-up petition, if successful, could cause Baha Mar’s three resort brand partners - SLS, Rosewood and Grand Hyatt - to withdraw from the project. All three are so far holding firm, although between them they are either on Baha Mar’s unsecured creditors committee and/or monitoring all the legal developments.

Finally, Mr Izmirlian is also raising the spectre of Baha Mar’s Bahamian retail and restaurant tenants, and real estate buyers, pulling out and taking their purchase deposits with them due to the uncertainty created by the provisional liquidators’ appointment.

There are just four days left for Baha Mar to achieve a negotiated settlement with its Chinese partners, and avoid having to contest the Government’s bid to remove Mr Izmirlian and his family and this Friday’s winding-up petition.

The Government is claiming that Baha Mar owes it nearly $59 million spread between taxes, fees and unpaid utility bills, and that there is no prospect of these being paid because the developer is “clearly insolvent”.

This, the administration is alleging, is evident because Baha Mar has admitted it cannot pay its 2,400 staff what they are entitled to under the Employment Act’s severance pay provisions without the $80 million financing facility arranged (but blocked by the Government and China) by Mr Izmirlian.

The latter’s statements to Mr Liu are nevertheless a direct challenge to Mr Christie’s assertion in his national TV address that the Government’s winding-up petition would provide the fastest way to Baha Mar’s completion and opening should settlement talks fail.

He argued that the provisional liquidators, upon ousting Mr Izmirlian and his family from their control of 14 out of 15 Baha Mar companies, would be able to work speedily with all stakeholders (meaning the Chinese bank and contractor) to open the $3.5 billion development well before the developer’s Chapter 11 route bore fruit.

Antoinette Bonamy, the director of legal affairs in the Attorney General’s Office, set out the Government’s case more clearly, alleging that Baha Mar was seeking to “indefinitely suspend” the project via Chapter 11 while it sought new financing sources and contractors.

“I am advised that Chapter 11 bankruptcy in the US can be complex and protracted, as well as being an extremely expensive process (particularly in the present case), where the interests of creditors with claims exceeding $2.5 billion would have to be represented, and such representation funded,” Ms Bonamy alleged.

The key here is that under US Chapter 11 bankruptcy protection procedures, Mr Izmirlian remains in control, whereas under the Bahamian Companies Winding-Up (Amendment) Act 2011 he would not.

Mr Izmirlian, meanwhile, reiterated his concerns in a July 25 letter to Baha Mar staff.

“The course of action the Government of the Bahamas has set us on, with its attempt to appoint a liquidator, will only serve to severely delay the opening of Baha Mar and will not solve the current issues,” he said.

“Ironically, the Government’s decision to seek a winding-up, it says, would serve the same purposes as the Chapter 11. Chapter 11, however, contains more robust protections for all parties, has often been used successfully for restructurings, and is designed to promote restructurings. The same cannot be said about the winding-up law.”