The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian “stood no chance” of raising the $600 million-plus financing necessary to complete the Baha Mar project and carry it through to a “break even” position, the Government’s foreign legal advisers have concluded.

Separate analyses by Hogan Lovells, the US law firm, and London-based Charles Russell Speechlys, argue that the evidence shows Mr Izmirlian’s proposed Chapter 11 restructuring plan was “nothing more than a pretence” given that he did not produce any proof of financing.

The two law firms poured scorn and derision on the Baha Mar developer’s decision to seek Chapter 11 protection in the Delaware courts, with Hogan Lovells’ memorandum describing his restructuring plan for he $3.5 billion project as “nothing more than a hypothetical construct”.

Charles Russell Speechlys went further, arguing that Mr Izmirlian’s Chapter 11 filing was “not so much a credible restructuring plan that would safeguard the future” of Baha Mar, but an initiative to ensure he remained in control of the $3.5 billion development.

Instead, both law firms argue that the Chapter 11 filing was “a tactic” to both strengthen Mr Izmirlian’s negotiating position with the Government and his Chinese partners, and prevent the China Export-Import Bank acting to realise its $2.5 billion security.

Prime Minister Perry Christie tabled the memorandums from the Government’s US and UK legal advisers in the House of Assembly yesterday, in a bid to show it was correct to oppose Mr Izmirlian’s Chapter 11 bid through the Bahamian and Delaware courts.

With no resolution in sight to the ongoing Baha Mar impasse, and under fire for its perceived close relationship with the Chinese, the Government seems to have rapidly sought assistance from its foreign attorneys.

Both memorandums are designed to justify the Government’s decision to oppose Mr Izmirlian’s Chapter 11 filing last June, and bring oversight of the Baha Mar dispute back within the oversight of the Bahamian court system.

They are each dated June 20, 2016, indicating that the Christie administration only reached out to its foreign legal advisers within the last week, as criticism intensified over the ‘concessions’ the Chinese are allegedly seeking to complete Baha Mar.

The Charles Russell Speechlys analysis indicates that it was provided in response to an e-mail request from Allyson Maynard-Gibson, the attorney general, on June 19, 2016.

The UK law firm produced what was requested within 24 hours, while Hogan Lovells’ memorandum is headlined: ‘Baha Mar’s Chapter 11 proceedings: Distinguishing Facts from Fictions’.

With the ‘one year’ anniversary of Mr Izmirlian’s June 29, 2015, filing for Chapter 11 protection less than a week away, Hogan Lovells said: “The passage of time and fading of memories have left room for mistaken impressions about the short-lived Chapter 11 cases, and what those cases could have been expected to accomplish.”

It added that its memorandum “may help to dispel confusion and to explain the Government’s continuing support for plans to remobilise and complete the Baha Mar project” via the China Export-Import Bank’s receivers and the Supreme Court.

Hogan Lovells attorneys, Craig Ullman and Edward Dolan, said it was “unrealistic, at best” for Mr Izmirlian and his executive team to claim Chapter 11 was initiated to place Baha Mar “on a firm financial foundation” so that its construction could be completed as soon as possible.

While Mr Izmirlian’s team had estimated that Baha Mar’s completion and opening would cost $600 million as at July 2015, Hogan Lovells argued there was little prospect of Mr Izmirlian obtaining the necessary financing other than through the China Export-Import Bank.

With Baha Mar not operational, its assets were largely already mortgaged as security to the Chinese state-owned bank, meaning there was no room for another debt financier to enter the picture.

“There was no realistic prospect that the Baha Mar debtors could raise an additional $600 million (or the additional investment required to cover deficits until resort operations reached the break even point),” Hogan Lovells said.

The US law firm argued that Baha Mar’s own Chapter 11 reorganisation plan had unwittingly exposed this, as its success depended on having the financing necessary to both complete the $3.5 billion and finance its initial operating period.

Payments to Bahamian and foreign creditors hinged on this financing as well, Hogan Lovells said, making it the key factor in any effort by Baha Mar to exit Chapter 11.

Hogan Lovells said Baha Mar’s restructuring plan provided no evidence that it had obtained commitments for the necessary financing, which would have to take the form of either equity or debt that ranked second to the China Export-Import Bank.

“It follows that until and unless the debtors [Mr Izmirlian and Baha Mar] can show that they have obtained a binding commitment or commitments from a credible source or sources, for new investment in the range of $500 million to $700 million (or more), their plan is nothing more than a pretence,” Hogan Lovells concluded.

“Thus, the plan was nothing more than a hypothetical construct, dependent on the availability of hundreds of millions of dollars of exit financing that the Baha Mar debtors stood no chance of obtaining.”

Hogan Lovells continued: “The developer of a partially completed real estate project can ill afford any protracted dispute with its secured lender unless the project can be refinanced from other sources.

“Notwithstanding Sarkis Izmirlian’s claims to the contrary, there never appears to have been any realistic possibility that refinancing or additional financing of the Baha Mar project could be available from any source other than China Export-Import Bank - or a new lender or owner of the project.

“The Government recognised last July that the Chapter 11 filings were a tactic employed by Sarkis Izmirlian to improve his negotiating position by preserving his control over the Baha Mar debtors and his ability to cause delays that would have become increasingly ruinous for the Bahamian people and economy.”

Hogan Lovells said “subsequent events” had justified this assessment, although it not identify what these were.

Charles Russell Speechlys, meanwhile, even headlined a section of its analysis as ‘Evidence Izmirlian is without funds’, and ‘Promises of funding are without foundation’.

It said of the Chapter 11 filing: “That process was one where Sarkis Izmirlian (would have) remained in the driving seat.....

“Baha Mar’s Chapter 11 was not so much a credible restructuring plan that would safeguard the future of the companies and ensure the swift completion of the resort, but instead was a defensive tactic to prevent China Export-Import Bank from enforcing its security (and to enhance Izmirlian’s bargaining position).”

Charles Russell Speechlys acknowledged that Chapter 11 “can be a highly effective tool” that allows companies to restructure and survive. It argued, though, that Baha Mar’s lack of cash, and the fact it was not generating operational income, was a major impediment.

“Even if the reported sum of $600 million could have been found to complete the works, there was no evidence that the substantial amount of working capital that would be required was in place to see the resort trade through to break even,” the UK law firm concluded.

It agreed that China Export-Import Bank’s substantial security over Baha Mar’s assets made prospects of securing a new debt financier “remote at best”.

“The Chapter 11 process was a device (either in whole or in part) designed to strengthen Sarkis Izmirlian’s hand in negotiations with the China Export-Import Bank, China Construction America and the Government of the Bahamas,” Charles Russell Speechlys said.

“The dismissal of the Chapter 11 process resulted in the loss of that hand.”

The UK law firm said Mr Izmirlian would have produced any financing he had secured during the Chapter 11 process, and said it had not seen any public confirmation that he was “in a position to advance further funding”, despite being given “ample opportunity to do so”.

Mr Izmirlian, though, has repeatedly said he has - or will be able to obtain - the necessary financing to complete and open Baha Mar in the many releases he has issued on the ‘offers’ made to the China Export-Import Bank.

His last offer was for both he and the bank to split the $600 million financing cost, and that CCA be ditched as project contractor. Mr Izmirlian has also pledged to make the China Export-Import Bank and all Bahamian creditors ‘whole’.

Some observers, though, have become sceptical as to whether he possesses the necessary financing, given that the Chinese bank would likely seize on his offer to be ‘made whole’ if the funding was in place.

They are also questioning why Mr Izmirlian has not produced his financing to-date, both at the Chapter 11 stage and to prevent the loss of his family’s $800 million investment, plus the decision not to participate in the Baha Mar sales process being run by receivers, Deloitte & Touche.