The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A key Sarkis Izmirlian ally yesterday urged Baha Mar’s $2.45 billion lender to negotiate a resolution with the project’s principal, even though he is unlikely to make any further financial concessions himself to resolve the Baha Mar dispute.

Dionsio D’Aguilar, a Baha Mar director, told Tribune Business that Mr Izmirlian had increased his family’s ‘contribution’ to the proposed resolution from $75 million to $125 million, but was willing to go no further.

He added that Baha Mar’s Chinese partners needed to show similar flexibility, and there were now only two ways to resolve the impasse.

These methods, Mr D’Aguilar suggested, involved either the China Export-Import Bank dropping its demand that the other parties fully guarantee its $200 million loan, or China Construction America shifting from its position that Mr Izmirlian ‘guarantee’ its $175 million guarantee to the bank.

“Izmirlian says he’s come as far as he’s going to go,” Mr D’Aguilar told Tribune Business. “He’s stated his position.”

Mr D’Aguilar said Mr Izmirlian had already made concessions to Baha Mar’s Chinese partners, increasing the financing his family will provide from $75 million (under the initial $300 million ‘deal’) to $125 million.

That latter figure consists of a $100 million capital injection by the Izmirlian family, accounting for 25 per cent of Baha Mar’s now-$400 million financing needs, plus a $25 million ‘letter of credit’ to part-guarantee the China Export-Import Bank’s additional $200 million loan.

The Chinese bank wants one of Mr Izmirlian and China Construction America, or both, to 100 per cent guarantee that credit facility.

While the contractor offered to guarantee the remaining $175 million, it wanted Mr Izmirlian and his family to ‘back up’ or ‘guarantee the guarantee’. This is something Baha Mar’s principal is refusing to do, even when China Construction America dropped its ‘guarantee’ to $100 million.

Suggesting that the Chinese now needed to give ground to resolve the Baha Mar dispute, Mr D’Aguilar said Mr Izmirlian was unwilling to provide the $200 million that was offered in his letter to the China Export-Import Bank’s leadership if the same contractor remained in place.

Baha Mar’s principal had offered to match the bank’s $200 million loan to complete the $400 million financing required, but only if China Construction America was replaced as lead contractor by a consortium of Bahamian contractors and professionals, who would then complete the $3.5 billion project.

“He’s not prepared to make that offer with China Construction America in the equation,” Mr D’Aguilar told Tribune Business. “The relationship is not strong enough to put up $200 million.”

In other words, trust between Baha Mar and China Construction America has completely broken down, and Mr Izmirlian - fearing the contractor will again miss a completion date - wants to limit his potential financial exposure.

In what some may interpret as an attempt to drive a wedge between the China Export-Import Bank and its fellow Beijing government-owned contractor, Mr D’Aguilar said the former would do far better to retain Mr Izmirlian as the developer than seek his replacement.

Acknowledging that “the sharks are circling” in anticipation of Mr Izmirlian’s demise, Mr D’Aguilar said they were all seeking to acquire Baha Mar for ‘cents on the dollar’ and a fraction of its true worth.

This, he added, meant that China Export-Import Bank would likely have to take “a bigger haircut” on its $2.45 billion loan to Baha Mar - financing that would increase to $2.65 billion should the additional $200 million financing ever be called upon.

“Izmirlian has never once talked about not making the bank whole,” Mr D’Aguilar told Tribune Business. “The bank will emerge in a far better condition if they deal with the developer than if they bring in someone else.”

Tribune Business understands that the China Export-Import Bank has been sounding out potential Bahamian receivers for Baha Mar, and is positioning itself to move should two key events happen.

It first needs to knock out Baha Mar’s Chapter 11 bankruptcy case in Delaware, which it will attempt to do on Monday, August 17, so that it does not run the risk of contravening a US court order.

Then it will wait to see what happens to the Government’s winding-up petition on Baha Mar when the Supreme Court hears that matter on August 19-20. If the bid to appoint provisional liquidators failed, then the bank may move to realise on its security via the Bahamian-registered debenture it holds over the developer’s assets.

Still, Mr D’Aguilar called on the China Export-Import Bank to “stop being distracted by China Construction America” and ignore “the shark feeding frenzy” building around Baha Mar,.

He added that “empirical evidence” from previous Chapter 11 cases “suggested that dealing with the original developer puts a bank in a far better position”.

He cited the case of Las Vegas’s Cosmopolitan Hotel, which was sold to Blackstone for $1.8 billion despite their being a $4 billion loan secured on it, after the financiers got rid of the original developer.

Given this example, where the financier received less than $0.50 on the $1, Mr D’Aguilar argued: “It would be far better for the bank to deal with Izmirlian.”

Reflecting on the 38 days that had passed since Baha Mar filed for Chapter 11 bankruptcy protection, Mr D’Aguilar hit out at the Government’s winding-up petition tactic for delaying/frustrating the development’s restructuring and completion.

“One has to ask, well, what has the Government achieved? You can only conclude that the Government has achieved absolutely nothing,” Mr D’Aguilar told Tribune Business.

He added that seven weeks had been “wasted” on the “massive distraction” that was the Government’s winding-up petition, which had blocked use of the $80 million financing facility created by Mr Izmirlian to pay Baha Mar staff.

As a result, key staff needed to operate Baha Mar when it was completed and open were walking away, taking vital knowledge with them.

Mr D’Aguilar said the Government’s insistence on the winding-up petition would further delay a negotiated settlement, and time was running out to close a deal in time for Baha Mar to meet the peak winter 2015 tourism season.

He suggested that a resolution was required within two weeks for Baha Mar to hit that time period.