The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian has refused to provide the financial guarantee sought by Baha Mar’s Chinese partners because he feels they are “not being fair” in demanding he cover the bulk of the $400 million refinancing package.

Tribune Business sources intimately familiar with Baha Mar’s position yesterday said Mr Izmirlian was unwilling to guarantee most of the extra $200 million in debt financing that China Export-Import Bank will provide because he believes the developer is not responsible for the project’s current predicament.

That responsibility, Mr Izmirlian believes, lies firmly with China Construction America (CCA), the project’s contractor, for failing to complete the $3.5 billion project on budget and on time for the March 27, 2015, opening.

CCA, though, has made a minor concession to Mr Izmirlian in reducing its ‘Baha Mar guarantee’ demand from $175 million to $100 million - according to both the contractor and the Government.

However, this would still leave Mr Izmirlian/Baha Mar with having to guarantee $125 million, or 62.5 per cent, of the new $200 million China Export-Import Bank facility.

“He thinks that’s unfair for a delay that’s not his fault,” one source, speaking on condition of anonymity, said of Baha Mar and Mr Izmirlian’s position on the ’financial guarantee’.

“Sarkis’s position is he doesn’t feel they should guarantee the full $200 million loan directly or indirectly. The bottom line is they want Sarkis to guarantee the full $200 million of what the bank is putting in. He feels CCA is not being fair.”

The source added that Mr Izmirlian was also concerned that, given CCA’s performance issues to-date, he and Baha Mar would be ‘on the hook’ to the China Export-Import Bank for the full $200 million should more completion dates be missed and the loan go into default.

Given the Beijing government’s ‘common ownership’ of CCA and China Export-Import Bank, Tribune Business was told there was a fear that, in the event of default, the bank would simply look past the contractor and call in the developer’s guarantee.

These details are effectively confirmed between the Government’s and CCA’s press statements on the latest round of talks in Beijing, although they have to be ‘decoded’ to work out the true picture.

The Government, for its part, said China Export-Import Bank was prepared to advance an additional $200 million loan to finance Baha Mar’s completion on top of the $112 million remaining on the existing $2.45 billion credit facility.

It confirmed that the bank wanted the new $200 million loan to be fully guaranteed by either Baha Mar or CCA, or a combination of both.

The Government said Baha Mar had offered to cover $25 million of the new facility via a ‘standby letter of credit’, with CCA willing to cover the remaining $175 million.

Yet the ‘catch’, as Baha Mar would see it, is the contractor’s demand that it provide a corresponding $175 million guarantee to ‘back up’ its own to the bank. This is now the current source of the impasse when it comes to structuring the $400 million financial package needed to complete the resort’s construction.

CCA yesterday backed the Government’s version of events in Beijing this week, and verified suggestions that there had been a small concession in its part - the offer to drop its guarantee demand on Baha Mar from $175 million to $100 million.

“In order to help satisfy China Export-Import Bank’s requirement that 100 per cent of its new $200 million loan facility be guaranteed, we offered to provide a financial guarantee of $175 million to the China Export-Import Bank,” CCA said.

“In return for using the strength of our balance sheet to provide this guarantee, we requested Mr Izmirlian provide our company with a personal guarantee of not less than $100 million.

“We offered Mr Izmirlian the option of providing his personal guarantee in any number of ways, including in the form of pledged collateral. Our offer to help satisfy China Export-Import Bank’s requirement of a full guarantee of the $200 million loan was rejected by Mr Izmirlian. This is precisely the reason a deal was unable to be consummated.”

The Government on Tuesday night said Baha Mar wanted to go no further than the $25 million ‘letter of credit’, and instead suggested that the Government ‘step into the breach’ by providing a $175 million sovereign guarantee.

Tribune Business contacts close to Baha Mar professed to have no knowledge of the ‘sovereign guarantee’ request, and some observers are likely to see it as a potential ‘stalling’ tactic by the developer or effort to embarrass the Government from a PR viewpoint by ‘kicking the ball into its court’.

For the Christie administration will almost certainly reject such a notion, given the current fiscal circumstances and its reluctance to get drawn into a commercial venture, especially one as controversial as this.

Still, one Baha Mar source suggested that the Chinese would be unlikely to call in a Bahamas Government guarantee should the need ever arise.

Still, viewed from Mr Izmirlian’s perspective, the present ‘guarantee’ demand would increase his commitments and exposure to a financial default from a situation he believes is not of Baha Mar’s own making.

With a further $400 million required to complete Baha Mar, the China Export-Import Bank will cover 50 per cent with its new loan facility, with Baha Mar and CCA both injecting $100 million each to meet the balance.

Under CCA’s original $175 million ‘guarantee’ demand, Mr Izmirlian would have effectively committed to underwrite $300 million or 75 per cent of the new financing - Baha Mar’s $100 million, plus the $25 million letter of credit and the $175 million to back CCA’s ‘guarantee’.

CCA’s revised $100 million request would still leave Baha Mar and Mr Izmirlian underwriting $225 million or 56.25 per cent of the $400 million package - a position he seemingly views as untenable, given where the blame lies for the missed March 27 opening and lack of trust in the contractor’s ability to perform.

CCA is vehemently disputing Baha Mar’s assertion that it is solely to blame for the $3.5 billion project’s woes (see other article on Page 1B), although Baha Mar has accused it of failing to agree to a construction completion date and ‘moving the goalposts’ on details underlying the financing agreement that all parties must commit to.

While Baha Mar has been more concerned about the ‘devil in the details’, the failure by Mr Izmirlian to give a ‘personal guarantee’ has been the dominant issue for both the Government and the Chinese from day one.

Sir Baltron Bethel, referring to the pre-Chapter 11 filing efforts to resolve the Baha Mar dispute, alleged in a July 19 affidavit: “My view of the position following the Prime Minister’s negotiation between the parties, with which I was closely involved, was that the main issue to be resolved to secure the additional funding, was the guarantee from Baha Mar, and that this was the clear understanding of all the parties. That guarantee was never provided.

“The chief executive of Baha Mar [Mr Izmirlian] requested a meeting with the Prime Minister, which was held on the afternoon of June 29, 2015.”

Sir Baltron, the Prime Minister’s senior policy adviser, added: “The Prime Minister inquired whether Mr Izmirlian was prepared to execute the guarantee as requested by the Ex-Im Bank, in order to secure additional funding, as China Export-Import Bank had agreed, in principle, to the remaining conditions which Mr Izmirlian had raised.

“It was during this meeting, without any prior notice, that Mr Izmirlian advised that Baha Mar had filed a petition for Chapter 11 bankruptcy within the US.”