The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar is aiming to pursue more than $200 million worth of claims against its main Chinese contractor partner, its Board yesterday determining that legal action against China Construction is “possibly imminent”.

Thomas Dunlap, Baha Mar’s president, alleged in an affidavit filed as part of yesterday’s Chapter 11 bankruptcy protection move that the developer’s claims against the contractor were “the most significant” source of funding to ensure the $3.5 billion development’s completion if the dispute with its Chinese partner was not resolved.

This came after Baha Mar’s directors, after yesterday reviewing material supplied by their attorneys, warned via a Board resolution that legal action against China Construction America’s Beijing-based parent was “contemplated and possibly imminent”.

The resolution reveals that Baha Mar’s action will be rooted in the completion guarantee made by China State Construction and Engineering Corporation on May 12, 2011, and its subsidiary’s construction contract that was agreed on March 9, 2009.

The Cable Beach developer is likely to hold off on any legal action for at least three weeks, which is the date for when it will return to the federal bankruptcy court in Delaware.

It has effectively set that as the deadline for resolving its differences with its Chinese partners, or finding an “alternative arrangement” to complete the $4.5 billion project’s construction.

With the Chapter 11 filing ‘freezing’ the present situation at Baha Mar, the company pledged that it would “continue to operate and fund payroll” for the 2,070 employees hired to-date until those court hearings in three weeks’ time.

But failure to reach an agreement with the contractor and its financier, the China Export-Import Bank, will lead Baha Mar to target potential compensation from legal proceedings against China Construction America as the financing source for construction completion.

Should such an outcome prevail, given that legal proceedings will likely drag on for months, it is highly probable that many of those 2,070 staff will be terminated.

“The claims that Baha Mar Ltd is continuing (or intending) to pursue in relation to the construction delays and disputes amount to an aggregate estimated value in excess of $200 million,” Mr Dunlap’s affidavit alleged yesterday.

“During [the next three weeks], the debtors will explore avenues to finish construction, secure any necessary additional financing through a chapter 11 recapitalisation, and monetise certain assets, the most significant of which are their construction claims against China Construction America, its subcontractors, and/or China State Construction and Engineering Corporation (under the completion guarantee).

“Only after these steps are taken will the debtors be able to re-start ‘pre-opening’ functions followed by a full opening. The debtors believe that this proposed course of action represents the best strategy to maximise value for all of their various stakeholders.”

Baha Mar has hired the Bahamian law firm of Glinton, Sweeting & O’Brien to advise it.

Among the Chapter 11 relief that Baha Mar is seeking are court Orders that prevent Bahamian utility providers from disconnecting services, and that it be authorised to continue paying due taxes to the Government.

Mr Dunlap admitted in his affidavit that Baha Mar owed “significant amounts of past-due utilities and gaming-related taxes due to the Government of the Bahamas”.

On the utilities situation, he said: “I believe the relief requested in the Utilities Motion is necessary and appropriate because uninterrupted utility services are essential to the debtors’ ongoing operations and the project’s viability and, therefore, are essential to the success of the debtors’ reorganisation.

“If the utility providers refuse or discontinue service, even for a brief period, the debtors would suffer immediate and irreparable harm, and the disruption would cause potential safety hazards. Thus, it is imperative that the utility providers continue to provide their utility services without interruption.”

Warning that the Government could initiate audits over the unpaid taxes, Mr Dunlap added: “The taxing authorities may attempt to suspend the debtors’ operations, file liens, seek to lift the automatic stay, and/or pursue other remedies that not only would be administratively burdensome to the debtors’ estates, but could also have disastrous consequences on the debtors’ business operations.

“The debtors’ failure to pay such taxes or fees to the taxing authorities could cause the debtors to incur late fees, penalties, and other charges.”

Mr Dunlap alleged that Baha Mar and its companies had $9.33 million in cash on hand as of yesterday, although much of that was subject to “asserted liens”.

He added that the Melia Nassau Beach Resort, which will continue to operate as normal, had $3.25 million in free cash. And some $20 million was held in accounts to honour and pay customer deposits.

On the staffing front, Mr Dunlap alleged that the new 2,070 hires accounted for $4 million or 53.3 per cent of its total $7.5 million monthly payroll.

“The debtors currently employ (excluding Melia) over 2,400 employees and staff at an average monthly payroll of $7.5 million,” Mr Dunlap alleged.

“Approximately $4 million of that average monthly payroll is attributable to 2,070 of the debtors’ employees that were hired in early 2015 in anticipation of the project being completed and opened to the public on March 27, 2015.

“Over 1,700 of these recent hires are rank and file employees that the debtors spent significant time and resources training to be prepared to operate the project by the end of March 2015.”