The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Baha Mar director yesterday warned that the termination of its Chapter 11 bankruptcy protection had undermined the $3.5 billion project’s “commercial viability”.

Dionisio D’Aguilar told Tribune Business that Justice Kevin Carey’s ruling had “opened up a can of worms”, as there was now potentially nothing to stop Baha Mar’s hotel brands, retail and restaurant tenants, and other partners from seeking to exit the project.

He explained that Baha Mar’s rationale for entering Chapter 11 had been to preserve the project, and its business relationships, intact. That protection was now ended, and Mr D’Aguilar suggested the process being supervised by the Bahamian Supreme Court would not offer the same cover.

He added that Sarkis Izmirlian’s removal as developer, and replacement by Supreme Court-appointed joint provisional liquidators, had only “increased the uncertainty” for both Baha Mar’s partners and the project’s ability to quickly complete construction and open.

“The beauty of the Chapter 11 process was that it allowed us to preserve Baha Mar in its current state while we dealt with the relationship with China Construction America,” Mr D’Aguilar told Tribune Business. “Does the winding-up petition do that? Only time will tell.

“Unfortunately, the big elephant in the room now that the Chapter 11 has fallen away, is all your agreements and all your relationships that are in place become open. Are they in play, open to re-negotiation. How’s that going to work?

“It [Judge Carey’s ruling] doesn’t preserve Baha Mar as it was when in a stronger position pre-Chapter 11. These are all people you’ve negotiated with in a position of strength. You’re now in a position of weakness, and if they decide they want to re-negotiate, every negotiation takes time.”

The Rosewood hotel brand had already sought to exit the Baha Mar project prior to yesterday’s ruling, which delivered a major blow to Mr Izmirlian’s hopes of retaining control of the $3.5 billion development.

That verdict does not yet appear to have given Rosewood an automatic exit route, with the Delaware Bankruptcy Court yesterday scheduling a date for the hearing on its withdrawal bid.

The attitude of Baha Mar’s other two brands, Grand Hyatt and SLS, is uncertain, although both filed appearances in the Chapter 11 case to ensure they were served with the necessary paperwork. And SLS’s parent, SBE Entertainment, is on Baha Mar’s unsecured creditors list.

Bahamian-owned retail and restaurant tenants also now face increased uncertainty over whether existing contractual agreements will be honoured, and who they will be dealing with - for the moment, likely the provisional liquidators.

Among the businesses affected by this are the John Bull Group of Companies, Colombian Emeralds, the Skandalaris family and Cole’s of Nassau.

“Allowing Chapter 11 to fall away increases the uncertainty surrounding the commercial viability of the project,” Mr D’Aguilar told Tribune Business, adding that the Government’s actions indicated it seemed not to understand this.

“While it may be a victory for Bahamian nationalism, I think it’s probably made it less commercially viable. All the people Baha Mar had agreements with: What are they going to do? It just makes it that much more difficult, speaking as a businessman, to make this viable.

“Chapter 11 served to protect all the agreements in place, and this [Tuesday’s ruling] puts them into doubt. Will people try to pull-out, re-negotiate? It opens up a real can of worms. You don’t want to end up with a legal victory and everyone’s bolted,” he added.

“We want the project to open, and it’s designed for the four hotel brands it has. To change course now will lead to enormous delays.”

The consequences of yesterday’s ruling are to put control of Baha Mar’s immediate fate under the control of Justice Ian Winder and his team of joint provisional liquidators, Bahamian accountant Ed Rahming, a partner in KRyS Global (Bahamas), and his two UK colleagues, Nicholas Cropper and Alastair Beveridge, of AlixPartners Services.

The latter are now free to focus on their mandate, which is to preserve Baha Mar’s existing assets and try to reach a commercial settlement between the developer and its Chinese partners, without interference, distractions and encumbrances coming from the Delaware Bankruptcy Court.

However, the joint provisional liquidators’ restructuring and settlement efforts will suffer an enormous blow if Rosewood or the other two hotel brands decide to exit.

Mr D’Aguilar explained: “If Rosewood says we’re out of here, bye, you’ve designed a hotel specifically for that brand. You can’t plonk a Holiday Inn in there.”

Hence his argument that the Chapter 11 termination removes the last obstacle to the wholesale unravelling of Baha Mar’s commercial relationships - a development that would result in increased construction completion costs, and delay the project’s opening by years as it is pieced back together.

“It’s reduced uncertainty as to where the process is finally worked out; it’s going to be Nassau,” Mr D’Aguilar told Tribune Business, “but I don’t think it’s improved the certainty as to whether you’re going to be able to strike a commercially viable deal.”