The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian’s already-tenuous control of the $3.5 billion Baha Mar project was effectively terminated yesterday by the Delaware Bankruptcy Court, which ruled that “no greater good” can be achieved by continuing with the Chapter 11 cases.

Judge Kevin Carey delivered a shattering blow to the developer by ending the bankruptcy protection previously enjoyed by Baha Mar’s 14 Bahamian-domiciled companies, a decision that places its Chinese partners and the Government ‘in the driving seat’ when it comes to determining the development’s fate.

Judge Carey reached his decision on the grounds that continuing the Chapter 11 proceedings was unlikely to force the Bahamian Government and Baha Mar’s contractor and financing partners back to the negotiating table “in short order”.

And he agreed with Bahamian Justice Ian Winder that Baha Mar’s 5,172 creditors, some 68 per cent of whom are based in this nation, had a ‘legitimate expectation’ that the Bahamas would be the main jurisdiction for resolving their claims if the development became insolvent.

Emphasising that “prompt judicial action” was required to successfully resolve the dispute and get the $3.5 billion project moving again, Judge Carey ruled: “Under these circumstances, I can perceive no greater good to be accomplished by exercising jurisdiction over these Chapter 11 cases.”

Dionisio D’Aguilar, a Baha Mar Ltd director, conceded to Tribune Business that Judge Carey’s ruling had significantly reduced Mr Izmirlian’s “options” when it came to both retaining control and restructuring the $3.5 billion project to ensure its completion and opening.

“I don’t think it’s a good decision. It is what it is,” Mr D’Aguilar said of his initial reaction.

Asked whether he was shocked by the Delaware court’s decision to rule in favour of the Chinese bid to dismiss the Chapter 11 cases, he replied: “It’s more disappointing, really.

“But it’s business. The options [for Mr Izmirlian] aren’t as robust as they once were, let’s put it that way. The Government got what they wanted; let’s see what they make of it.”

Tribune Business sources close to Baha Mar’s advisory and legal team had previously admitted that an adverse ruling by Judge Carey would effectively destroy their entire strategy.

However, Mr D’Aguilar declined to comment further, saying he wanted to give Mr Izmirlian and Baha Mar a chance to respond first. He suggested that the former was now likely closeted with his key legal and financial advisers, in a bid to plot their next move and see what can be salvaged from the legal defeat.

The effect of Judge Carey’s ruling is to remove the last potential obstacle to the Bahamian Supreme Court and its joint provisional liquidators taking full control over Baha Mar.

Justice Winder, and the team of Bahamian accountant Ed Rahming and two UK professionals, Nicholas Cropper and Alastair Beveridge, to get on with the job of preserving Baha Mar’s assets - and seeking a negotiated settlement between the development parties - without having to worry about ‘distractions’ from the US courts.

The Delaware court has also firmly ‘put the ball’ into Mr Izmirlian’s court to reach a deal with his main financier, the China Export-Import Bank, and China Construction America (CCA), for the project’s completion and opening.

The Lyford Cay resident now has 48 days to achieve this, otherwise the $850-$900 million investment in Baha Mar by himself and his family will be in great jeopardy - especially since they no longer have Chapter 11 ‘cover’.

“We’ll see whether Sarkis steps up to the plate or if he’s done,” one source, close to the Government and Baha Mar’s Chinese partners, told Tribune Business.

CCA and the China Export-Import Bank will likely ‘squeeze’ Mr Izmirlian mercilessly, and try to force him to accept commercial terms far more unfavourable than those offered both before and after Baha Mar’s June 29 filing for Chapter 11 bankruptcy protection.

The Chinese, at the very least, will likely demand that Mr Izmirlian provide the $175 million guarantee (a demand later lowered to $100 million) that he has previously baulked at committing, on the grounds that CCA should pay because all the problems stem from its failure to complete construction on time and on budget.

However, Mr Izmirlian is now faced with a stark choice - reach a deal with the Chinese and Christie administration on far less favourable terms before the November 2 winding-up petition hearing, or face losing his family’s $850-$900 million equity.

Tribune Business understands that yesterday’s Delaware Bankruptcy Court ruling also opens the way for the China Export-Import Bank to appoint its own receiver for Baha Mar, as it is allowed to do under the$2.45 billion debenture security for its loan.

It had previously baulked at doing this due to the ‘protective Orders’ issued as part of the Chapter 11 proceedings, as it did not want to violate them, but Judge Carey’s decision removes all concerns here.

Tribune Business understands that the China Export-Import Bank has already been sounding out potential receivers for Baha Mar via its Bahamian attorneys, although the latter declined to comment on this yesterday.

However, it is thought likely that the bank will hold off from doing this to permit the court-appointed provisional liquidators to perform their work, and see if they can oversee negotiations between the parties

Brian Simms QC, Lennox Paton’s litigation head and chief attorney for the China Export-Import Bank, merely told Tribune Business: “Clearly, our clients will be pleased. They had applied to dismiss the Chapter 11 proceedings, and were entirely successful in relation to the Bahamian [Baha Mar] companies.

“Otherwise, at this time, I have no further comment.”

Mr Rahming, in an e-mail sent to Tribune Business last night on behalf of the joint provisional liquidators, said the Delaware Bankruptcy Court’s ruling would not change their role.

Emphasising that they were ‘officers’ of the Supreme Court, working for Justice Winder, Mr Rahming added that they had a “massive” task in sorting through thousands of documents that form Baha Mar’s corporate records.

“Our role is to protect and preserve Baha Mar’s assets, and focus on bringing all parties to the table such that the resort can open,” the KRyS Global accountant said.

“As we have stated previously, the successful opening of this development is in everybody’s interests, and therefore we are focused solely on that rather than being distracted by proceedings outside our control and court-appointed obligations.”

Mr Rahming continued: “We have a significant task ahead of us and are working extremely hard as we continue to gather appropriate information. We have been well supported in this thus far, thanks to the co-operation of the parties involved.

“Given the scale and complexity of this situation there is still much to be done, and we are hopeful that our process continues in the same positive vein.

“Nonetheless, it remains a fact that we are still in the early stages of our work and whilst we are clear as to our final destination there are still many routes to be explored in getting there.