The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar has pledged not to ‘draw down’ a $10 million Letter of Credit posted by Morgans Hotel Management Group, as it bids to end their court dispute following termination of the latter’s 20-year operating deal.

The $2.6 billion developer’s US attorneys, in a June 9 letter to the New York State Supreme Court, said it was working with Deutsche Bank Trust Company Americas to either cancel or release the letter of credit back to the Mondrian brand operator.

As a result, and having accepted Morgans’ decision to terminate the hotel management agreement for the 300-room hotel, Baha Mar is asking the New York court to effectively close the Morgans-initiated legal action.

Jodi Kleinick, of the Paul Hastings law firm that represents Baha Mar, wrote: “The petition and the application for injunctive relief [by Morgans] has been rendered moot.

“On June 3, Baha Mar notified Morgans that Baha Mar accepted Morgans’ notice of termination of the hotel management agreement, and Baha Mar has since been working with Deutsche Bank to effectuate the cancellation/release of the letter of credit. Baha Mar does not intend to take any steps to attempt to draw down on the letter of credit.”

Baha Mar’s decision to accept the termination, and pledge not to seek the $10 million, claim after it must have sealed the deal for SLS Hotels to replace Mondrian as the operator for its luxury ‘lifestyle’ hotel.

Morgans had previously alleged that Baha Mar “improperly retaliated” for its decision to terminate the hotel management agreement by seeking to draw down the $10 million ‘Letter of Credit’.

The $10 million represented ‘Key Money’ owed by Morgans to Baha Mar, and which was to be paid to the latter in stages in the run-up to the Mondarin’s opening.

Some $3 million was to be paid 180 days prior to the December 1 opening (June 4, 2014); with a further $3 million paid 90 days out (September 2, 2014); and the final $4 million balance due on the opening date.

Morgans alleged that the ‘Letter of Credit’ had been extended several times from the August 8, 2012, original expiration date, with July 23, 2014, the final agreed timeline.

The hotel operator also claimed that the”two limited circumstances” upon which Baha Mar could draw upon the Letter of Credit had not been met, meaning there was “no justification” for the developer to issue an April 17, 2014, demand letter to Deutsche Bank Trust Company Americas requesting payment.

That is now all in the past, and it appears increasingly likely that the two sides will end the New York litigation and go their separate ways.

Their dispute had centred on Baha Mar’s alleged failure to fulfill certain conditions contained in a July 31, 2011, hotel management agreement with Morgans.

In particular, the 20-year agreement for Morgans to provide “direction, management and supervision” of the Mondrian property required that Baha Mar obtain a “non-disturbance agreement” from its financiers within six months of the deal’s signing.

Such an agreement, which Baha Mar had to obtain from the China Export-Import Bank, its multi-billion dollar lender, would have allowed Morgans to continue uninterrupted management of the Mondrian even if the developer defaulted and the Chinese institution had to foreclose.

“Baha Mar failed to obtain a non-disturbance agreement or to inform Morgans Management of its failure to do so within six months of the date of the Hotel Management Agreement,” Morgans alleged.

“Instead, Baha Mar repeatedly assured Morgans Management that it would obtain such an agreement and requested additional time to do so.”