The Tribune

Ishmael Lightbourne makes a plea to the government to broker a deal over the stalled mega resort for the good of the country . . .

Both national dailies reported on April 12 as headline stories that Sarkis Izmirlian had made a new bid to the principal financier of the Baha Mar development, the Chinese Export-Import Bank to resume his role as the principal developer and owner of the development.

The new offer, we have been told, has been launched on the basis that Izmirlian would provide the necessary funding not only to make sure that Exim Bank would not be required to take a discount or a “haircut” on its debt but that all unsecured creditors would be paid off.

In addition, Izmirlian promises to provide the financing for the completion and opening of the development and the re-employment of all of the Bahamians who were terminated. The new offer, we are told, follows a “positive meeting” with Prime Minister Christie the previous week. This latest offer sounds too good to be true but it deserves consideration.

It is not at all surprising that the original developer of the Baha Mar development maintains an avid and, perhaps, even a consuming interest to be reinstated as the developer/owner to enable him to complete the development and to see it opened, even though as some close associates of Mr Izmirlian would maintain, that he has been given the “cold shoulder” by both Prime Minister Christie and the Exim Bank, Baha Mar’s financier to the tune of an estimated $2.5 billion throughout the process of the liquidation and receivership.

Mr Izmirlian’s continued interest is driven by two compatible and complementary forces; firstly, the insatiable desire to see that his grand vision or dream is realised under his leadership. Mr Izmirlian’s predicament is comparable to that of Moses, the original leader of the nation of Israel, who had borne the burden and the heat of the wilderness or desert but was not permitted to cross over into the “Promised Land” but only view it from afar. Like Moses, Mr Izmirlian has been the brainchild of the development from conception through design and subsequent development to virtual completion, but only to be cast aside, like a refugee or an exile, by the uncompromising legal processes which ultimately led to the appointment of receivers.

The second force that drives Mr Izmirlian’s passion to be reinstated is the financial motivation. It has been said that Mr Izmirlian has invested up to $1 billion in the development and the cold and harsh reality of a receivership in all likelihood would mean that he would lose every dollar of his investment. That prospect is a very harsh and painful realisation for any investor, but in a Bahamian context, to lose $1 billion is almost unimaginable.

It is interesting to note that one of the dailies stated that “The Prime Minister was yesterday said to have performed a ‘180 degree U-turn‘ in his relationship with Sarkis Izmirlian,” presumably in meeting with Mr Izmirlian and the Prime Minister is being strongly urged to support this latest proposal from the original developer. It can be said equally, that Mr Izmirlian himself has performed a “180 degree U-turn” or has undergone a “Damascus Road” conversion from his original launching of the Chapter 11 Bankruptcy proceedings in the United States to his present bold offer to hold all creditors both secured and unsecured harmless from financial loss or any discount on their debt.

When the Chapter 11 Bankruptcy proceedings were launched in June, 2015, by Mr Izmirlian, it was clearly intended for him primarily, to remain as the Debtor in Possession, to be allowed by the Bankruptcy Court to reorganise the businesses which were heavily debt burdened and to seek relief from creditors. Such creditor relief would normally include, as a minimum, the deferment of debt and more than likely renegotiation of indebtedness so that creditors would be paid, eventually, less than 100 cents on the dollar.

It is, to say the least, an unenviable position for creditors, especially unsecured creditors, to be in but the uncomfortable reality is that creditors must either voluntarily accept the discount in the debt up front or be forced to accept a discount or a complete write off of the investment in the case of unsecured creditors and the owner, Mr Izmirlian. Against this somewhat austere backdrop, which was possible under the Bankruptcy Proceedings, the current Izmirlian proposal to hold creditors harmless from financial loss and to provide funding for completion, opening and initial operation of the business is a sizable difference in the financial undertaking that Mr Izmirlian is prepared to assume.

The new Izmirlian proposal deserves a fair hearing given his substantial stake in the development and given his passion to see it consummated. But the other stakeholders must be concerned as to the motivation for this new focus and even more concerned as to the certainty and his financial capacity or ability to meet the funding requirements driven by this new proposal. The question must be asked what has provoked this staggering development by Izmirlian from the Bankruptcy Petition in June, 2015, to this amazingly new offer to hold all creditors harmless from financial loss?

The difference between these two positions is enormous.

This “epiphany” or grand awakening, supposedly on the part of the Prime Minister and Izmirlian, was presumably driven by the harsh reality experienced by both during the past year. In the case of the Prime Minister, time is the No.1 enemy in that the longer the receivership drags on without any possible sale in sight, and no prospect for the completion of the development, the opening of the resort and the re-engagement of the thousands of Bahamian workers, the prospects for meaningful turn around in the economy and for economic growth remain an elusive dream, which becomes a nightmare as the 2017 General Elections fast approach.

As regards Izmirlian, his nightmare is even more imminent in that he has already lost leadership/ownership of the development and more than likely could lose his entire investment of $1 billion. This all begs the question whether the Exim Bank has experienced a similar awakening, given the fact that its $2.5 billion debt is not being serviced and that time, too, is not on their side because the longer the matter remains unresolved, the interest accruing on their debt - which I would conjecture would be in the range of $200m per annum - along with the debt itself are impaired and would be partially irrecoverable.

The three principal stakeholders, Mr Izmirlian, the Exim Bank and the Bahamas Government, are bound to experience irretrievable losses the longer this matter remains unresolved. Notwithstanding any missteps or any errors in judgment made by Mr Izmirlian, I am sympathetic to his cause and to his plight given that Baha Mar is his creation and given his extreme financial exposure if the receivership is to run its course.

He deserves a second chance. The prospect of losing his entire investment is both unthinkable and unconscionable. No Bahamian would wish this on his worst enemy. However, the business case for the successful outcome of Mr Izmirlian’s new proposal is daunting and may border on being unrealistic and unattainable. I say that because his new proposal assumes that he would not only take over the existing estimated $3.5 billion investment but must find additional financing which could be estimated to be an additional $1 billion taking into account the estimated cost for the completion of the development, which has been stated at around $600m (at the high end), working capital for approximately six months along with debt servicing costs.

That would push the total investment cost to around $4 billion to $5 billion and the question that emerges is whether such a heavy, upfront investment could be justified and is recoverable from the expected operations of the resort. In other words, would the expected returns from the operations justify this huge initial investment cost or valuation and is it possible that the new proposal from Mr Izmirlian could inflict even greater losses than he has already experienced, if the operation of the resort cannot generate the kind of returns needed to service the substantial debt?

The Izmirlian proposal therefore requires careful evaluation and verification.

The stakeholders, over the past year, have promoted and have been engaged in complex legal proceedings, including Chapter 11 Bankruptcy, Compulsory Liquidation and now Court appointed receivership, in the hope of a resolution, the main elements of which would be the satisfaction of creditors, the completion and eventual opening of the development. These legal proceedings are not only time consuming but expensive. The final initiative, the receivership, may ultimately find a buyer and a new owner, but the likelihood of satisfying creditors, both secured and unsecured and obtaining the ultimate goal of opening the development on a timely basis, is doubtful.

It is readily acknowledged that the stakeholders have conflicting objectives. The government, and by extension the people of The Bahamas, need the Baha Mar development to be completed and opened as soon as practicable. The Exim Bank needs the security of their $2.5 billion investment. Izmirlian wants to resume his role as owner and developer to be allowed to bring his dream to realisation and to protect his investment, which in the present circumstances is probably irrecoverable. The receivership will not accomplish all of these objectives because its primary objective is to satisfy the needs of the Exim Bank and there is no certainty that even that objective could be met entirely, let alone meeting the obligations to unsecured creditors.

The new proposal of Izmirlian provides an opportune time to jumpstart the negotiations among the principal stakeholders including the Exim Bank, Izmirlian and the Government. From the Bahamian perspective, not only is this too big to fail, but it is also too big to be allowed to be placed in mothballs when thousands of our Bahamian brothers and sisters remain unemployed and unable to meet their commitments and the country’s economy continues to flounder with low growth … I would urge therefore that the negotiations be restarted and that the Izmirlian proposal be given serious consideration; he deserves no less given that he has already invested approximately $1 billion in the development and has spent the last 13 years of his life putting the pieces together.

The Izmirlian credentials, especially his consuming and driving passion together with the experienced management team that he has assembled, for the completion of this project and getting it opened in the shortest period of time, in my view, are already in place and could be mobilised easily to get the job done. I would therefore urge the government to be the facilitator in bringing the stakeholders together with the ultimate objective of getting this development completed and opened and operating in the shortest time.