The Tribune

Richard Coulson explains why the $100m ‘gift’ to Bahamian creditors is doing nothing to advance Baha Mar’s revival . . .

Last week the Prime Minister proudly announced that he persuaded the Export-Import Bank of China (CEXIM) to contribute about $100 million “as a goodwill gesture” payment to Baha Mar’s Bahamian creditors.

Now that the fine print is appearing underneath this sweeping promise, we can see what a tricky offer it really is, and nothing but a sideshow to the main event.

The hastily-formed, five-person Creditors’ Committee faces an overwhelming administrative task with major ambiguities in its guidelines - just take a look at the recently published Notice found at the website www.claimsspv.net. It covers both former employees of Baha Mar (possibly up to 2,000 of them) and other creditors who performed work or services or sold goods.

Apparently it is intended (although not stated) to pay off employees’ claims 100 per cent and divide the balance available among the other creditors, who may well number in the hundreds. However, since the Notice nowhere states exactly how much money CEXIM is providing, nor how it will be allocated since it will not cover total claims, any estimate of individual payouts can be nothing but the wildest guess.

The procedure for employees is simple: they will be automatically contacted by the Committee and paid by September 30. But the other creditors must submit the published Claim Form, attaching invoices, work orders or other back-up documentation, plus evidence of majority Bahamian ownership. This paperwork file must be provided as hard copies or computer-readable scans and submitted by September 30. Every claim must be scrutinised by the Committee, and, if approved, then a letter sent out telling where to come to collect a cheque. The Committee “aims to complete” the payout process by December 31.

The worst shocker found in the Notice excludes a major category of creditors: the many sub-contracting firms who naturally signed up with the prime contractor, the Chinese company known as CCA (China Construction America), rather than directly with Baha Mar. They now discover that they will get nothing from the Creditors’ Committee, since CCA is said to be a solvent company capable of settling its own debts. But CCA is notorious for its wrangling and slow pay tactics against any legitimate claim, so the only recourse, as suggested by builder/developer Steve Wrinkle, may be consolidated litigation.

Far from making a “goodwill gesture”, CEXIM will simply be purchasing creditors’ claims which will be assigned and added to the $2.5 billion loan that CEXIM expects to recoup when Baha Mar is eventually sold.

Distribution of the (maybe) $100 million gets all the publicity but is only a sideshow to the main event that is still hidden off-stage. $100 million sounds like a lot of money, but it’s peanuts compared to what must be sunk into the vast project to get it open and compared to the contribution it will make to our economy once it’s running. For that, CEXIM, the one secured creditor, must do a deal with an owner/operator, involving complex negotiations for a buy-out, a lease, an operating agreement and all kinds of side arrangements.

On all of this, the Creditors’ Committee is totally out of the picture; even the Bahamian liquidators have nothing much to say. Negotiations are proceeding, intensely but privately, between CEXIM, its receivers and somebody like the Macao casino group or Albany’s Joe Lewis, with Perry Christie an interested bystander who is given scraps of information while the high-stakes poker game is played out. Legally, the final deal will have to be approved by Government and our Supreme Court, but they will have little choice but to rubber-stamp whatever final solution has been agreed and laid before them.

At present the Baha Mar property held by CEXIM as first mortgagee is not an asset, it’s a liability, costing millions to maintain, with no incoming revenue. It will only become an asset when some party buys and starts to operate it. That’s the event that will truly benefit our country, far more than the paltry $100 million being paid out now. Of course, we have been given no clue when that event might occur.

The split between the Creditors’ Committee and the crucial sale negotiations illustrates the peculiar and dilatory way the entire rescue of Baha Mar has been handled, compared to what would have happened under a Chapter 11 process started nearly 15 months ago. Any Chapter 11 case pursues as its first objective a “plan of reorganisation” to try to keep the bankrupt property in operation by the debtor in possession, or to undertake an immediate search for a new buyer/operator. Any idea of “liquidation” of a hotel project is a non-starter, since distributing the physical plant among CEXIM and all the junior creditors is a practical impossibility. Under the usual “stay” order, all creditors are held at bay until the reorganisation is complete.

Instead of that orderly procedure, which US bankruptcy courts have handled hundreds of times, we see CEXIM and its receivers still struggling after 15 months to find a buyer, while a hastily-crafted payout scheme to some (not all) categories of creditors is rushed into action by a well-meaning but inexperienced ad hoc Committee.

Of course, the Prime Minister was on the horns of a dilemma. Faced on one side by a feeble economy, a Moody’s downgrade threat and looming elections, and on the other side by the continuing inability of CEXIM to close a deal, he had to do something to sweeten the electorate. The only method at hand was to squeeze CEXIM out of $100 million that he could publicise as a gift to Bahamians (some of them). We can rejoice in the happiness of those Bahamians who will receive a payout, even if only partial. But it’s purely a stop-gap, doing nothing to advance the essential revival of Baha Mar.

Mr Christie’s dilemma was real, but he has only himself to blame for landing in it. Fifteen months ago, in a fit of irrational pique against Sarkis Izmirlian, he accepted the bad advice of his Attorney-General to brush off Chapter 11 in favour of the “speedy and efficient” local procedures that had never been burdened with a collapse of this magnitude and complexity - and have now proven their impotence.

We must now extend sympathy and best wishes to Creditors’ Committee Chairman James Smith, the good soldier who was staggered by the task thrown at him without warning and who will loyally do his best. If not every payment is made on time, it will not be his fault, but can be laid at the door of the Prime Minister making rash, abrupt promises to escape the consequences of his own errors.

• Richard Coulson is a retired lawyer and investment banker born in Nassau and from a long line of Bahamians. He is a financial consultant and author of A Corkscrew Life - adventures of a travelling financier.