Bahamas Luxury Resort May Open In Early 2016

Published in the Bloomberg Business, October 12, 2015

By Dawn McCarty and John Lippert

Baha Mar, the $3.5 billion Bahamas resort at the center of a bitter commercial dispute, will open early next year if Prime Minister Perry Christie has anything to say about it.

An agreement could save the resort from liquidation, as a Bahamian court is set to consider a winding-up petition at a hearing in November. Until then, liquidators have limited powers and can’t displace current management.

The contractor, China Construction America Inc., and the developer, Baha Mar Ltd., fought over missed deadlines, invoices and change orders in the months leading up to the June bankruptcy filing in the U.S. The contractor didn’t complete the project by the original deadline in late 2014 or an extended deadline in March. When Baha Mar withheld payments after the March deadline passed, CCA ceased work and refused to complete the project until it got paid, according to court papers.

In August, Standard & Poor’s cut its credit rating for the Commonwealth of the the Bahamas to BBB- from BBB. “We believe the Baha Mar bankruptcy filing and subsequent legal disputes will depress growth and possibly affect the fiscal and external accounts,” the agency said in a report.

“Growth bottlenecks, including high household indebtedness, loan arrears, and unemployment levels, as well as energy inefficiencies, continue to subdue growth prospects of the Bahamian economy,” S&P said in the report.

Christie voiced confidence in an Oct. 9 interview that talks by Baha Mar, the state-owned China Construction America, and the Export-Import Bank of China will yield an agreement allowing workers to finish the mega-resort. Court-appointed provisional liquidators and representatives of the Bahamian government are also involved in the discussions.

‘Early Opening’

“Whatever levels of pessimism that exist, I choose to believe that we are going to have an outcome that will result in early construction resumption and early opening of that resort,” the prime minister said.

Baha Mar filed for bankruptcy June 29 in Delaware after delays forced it to miss the March 27 opening of the four-hotel resort and golf complex. The Supreme Court of the Bahamas refused to recognize the U.S. proceeding and approved the appointment of provisional liquidators to protect the assets of the resort.

The bank and CCA asked the the U.S. bankruptcy court to dismiss the Chapter 11 case saying it lacked any “meaningful connection to the U.S.” and it was an “obstacle to a successful reorganization.” U.S. Bankruptcy Judge Kevin J. Carey disagreed with those points.

Judge’s Ruling

“The debtors’ preference for restructuring under the protections of the United States Bankruptcy Code is understandable and entitled to some weight,” Carey said in his Sept. 15 opinion.

A Chapter 11 case with all stakeholders participating would be the “ideal vehicle” for restructuring Baha Mar’s properties and finishing a project that’s 97 percent complete, Carey said. He said the process would allow the company to exit bankruptcy on “sound financial footing, with appropriate treatment of creditors.”

The bank and CCA alleged the Chapter 11 cases were filed in bad faith or as a tactic to avoid insolvency proceedings in the Bahamas. The judge disagreed, saying the ”totality of the facts and circumstances” don’t “support a determination of bad faith.”

Carey threw out most of Baha Mar’s case, leaving Northshore Mainland Services, the only affiliate with U.S. assets, under his jurisdiction.

The parties have had many unsuccessful attempts at coming to a resolution to get the resort open. On Sept. 28, the developer, Sarkis Izmirlian, met with Prime Minister Christie and voiced his concerns about the liquidation and his willingness to negotiate with the bank and contractor to resolve the outstanding issues.

Everyone Focused

“Whilst there is still work to be done, it is clear that all involved are focused on quickly reaching a viable solution to ensure that the Baha Mar resort is able to open for business for the benefit of all stakeholders, including the Bahamian people,” liquidators Edmund Rahming, of KRyS Global, and Alastair Beveridge and Nick Cropper, of AlixPartners, said in a statement.

Baha Mar is expected to employ about 5,000 people with an annual payroll of more than $130 million, the developers said in court papers. That would represent 12 percent of the gross domestic product of the Bahamas, according to court papers.

“At the end of the day the Bahamas must come out with that resort open and functioning and must be open early next year at the latest,” Christie said.

The U.S. bankruptcy case is In re Northshore Mainland Services Inc., 15-11402, U.S. Bankruptcy Court, District of Delaware (Wilmington).