The Tribune

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

TWO Nassau resorts, and their Bahamian holding entities, are not caught by yesterday’s “last resort” bid from Baha Mar’s contractor to protect its US arm from Sarkis Izmirlian’s “crippling” $1.6bn damages win.

CCA Construction Inc, the contractor’s New Jersey-based entity, confirmed it had sought Chapter 11 bankruptcy protection in the US legal system to safeguard its assets and business from any attempt by Baha Mar’s original developer to enforce his near-total New York State Supreme Court triumph by seizing their property.

The Chinese state-owned contractor, in a statement, said the move was intended to preserve its ability to overturn Mr Izmirlian’s success after the New York court’s appeals division last week eliminated the temporary injunction CCA had previously obtained to block enforcement of his $1.642bn damages award. Its removal also meant the company had to post a $1.9bn bond to pursue the appeal - a sum it says it cannot raise.

However, the Bahamian-domiciled entities also named as defendants in the New York action, CCA Bahamas and China State Construction and Engineering Construction (CSCEC) Bahamas, are not impacted by yesterday’s Chapter 11 bankruptcy protection filing.

And The Tribune also understands that they, as well as the separate Bahamian incorporated entities that hold downtown Nassau’s British Colonial and Margaritaville Beach Resort, are not subject to any administration, receivership or liquidation-related proceedings before this nation’s Supreme Court - as had been threatened in previous CCA legal filings.

This is likely because, as the Chapter 11 paperwork makes clear, CCA Bahamas and CSCEC Bahamas are required to file the contractor’s substantive appeal against Mr Izmirlian’s damages award with the New York court by December 30, 2024. They would likely not be able to do so if subject to any receivership and/or liquidation proceedings in The Bahamas.

And CCA Construction Inc is also demanding a rapid hearing before the New Jersey Bankruptcy Court, which it wishes to take place no later than December 27, 2024, right after the Christmas holidays in a bid to lift the automatic Chapter 11 ‘stay’ to that it can join in with the appeal filing.

This newspaper understands that CCA’s move took Mr Izmirlian and his team by surprise as they believed it was implausible a Chinese state-owned company would file for Chapter 11 bankruptcy protection given both the potential reputational damage this threatens to inflict on Beijing as well the substantial resources it can devote to the contractor’s cause. However, CCA has now made good in its earlier bankruptcy threat.

Yet the irony of CCA having to seek Chapter 11 bankruptcy protection with a sudden, surprise filing on a Sunday/weekend is unlikely to be lost on many given that nine-and-a-half years ago it slammed Mr Izmirlian and his executive team for doing exactly the same thing after it failed to complete the multi-billion Baha Mar mega resort on time and on budget.

Yan Wei, CCA Construction Inc’s chairman and chief executive, in a statement that accompanied CCA’s Chapter 11 filing, said: “Our actions today are intended to protect CCA’s right to appeal the New York state court’s fatally flawed decision and preserve the value of CCA for the benefit of all stakeholders while the appeal process plays out.

“The record is clear that BML Properties’ [Mr Izmirlian’s corporate vehicle] losses were entirely the result of its own gross mismanagement and irresponsible actions, and that the lower court’s decision

suffers from multiple, insurmountable errors of law.

“Among its many failings, the lower court’s decision completely ignores the reality that CCA was not involved at all in the Baha Mar construction project. We look forward to presenting our arguments to the appellate court.” CCA Construction Inc is denying that it was the construction manager for Baha Mar, instead pinning this responsibility on CCA Bahamas, which it argues is not one of its subsidiaries or affiliates.

A complex corporate chart, filed with the New Jersey bankruptcy court as part of Mr Wei’s affidavit, purports to show CCA Construction Inc as a separate entity with no ties to the Bahamian companies or operations. However, both it and the Bahamian entities come under CSCEC Holding Company, whose ultimate parent is China State Construction Engineering Corp.

Instead, CCA’s Bahamian entities are shown as owned by CCA International Group, a Delaware-incorporated entity. CCA Bahamas, which comes directly under this company, is shown as the immediate owner for Neworld One Bay Street and Strategic Property Holding Ltd, which are the holding entities for The Pointe and British Colonial, respectively.

Meanwhile, Mr Wei accused Mr Izmirlian and BML Properties of “undermining CCA’s ability to win and execute new business” in the US as a result of launching his fraud and breach of contract claim over Baha Mar’s failed opening almost exactly seven years ago at Christmas 2017.

“This Chapter 11 case is one of last resort, and was ultimately necessitated by a crippling $1.6bn judgment issued by the Supreme Court of New York and entered on October 31, 2024, against CCA and two non-debtor affiliates, and in favour of BML Properties,” Mr Wei alleged.

“CCA’s financial challenges, which began in 2015, were caused by several factors outside of its control including a broad retreat from, and policy changes negatively impacting, Chinese investment in US-based construction projects.

“These business headwinds were further exacerbated by the 2017 commencement of the Baha Mar litigation, and the allegations made by BML Properties therein, which undermined CCA’s ability to win and execute new business. CCA’s ongoing financial problems have now reached a tipping point with the entry of the Baha Mar judgment.”

Mr Wei, arguing that CCA had “no recourse” but to seek Chapter 11 protection after last Thursday’s removal of the temporary injunction left it exposed to both Mr Izmirlian’s demands and the $1.9bn bond mandated by the New York appeals court, added that the Chinese contractor is seeking “a breathing spell to address its ongoing and deepening financial distress” that has been worsened by the Baha Mar judgment.

“In light of the denial of the stay pending appeal, and without the ability to post a bond, CCA is at risk of immediate enforcement of the Baha Mar judgment. Enforcement would require CCA to turn over or hastily liquidate its operating subsidiaries, effectively forfeiting its right to an appeal, and would cause disastrous consequences for CCA,” Mr Wei added.

“During the appeal and any subsequent remand, the CCA group will work to preserve the value of its businesses, which will benefit all constituents. In the unhoped-for event that the Baha Mar judgment is not reversed or modified by the first department, this Chapter 11 case will give CCA time to develop alternate strategies, including exploring an orderly sale or other transactional alternatives....

“The Chapter 11 process is the only pathway through which CCA can preserve value with the goal of emerging as a reorganised and stronger enterprise for the benefit of all of its stakeholders.”

CCA Construction Inc is also seeking approval from the federal New Jersey bankruptcy court to receive $40m in financing from its immediate owner, CSCEC Holding Company, so that it has “sufficient liquidity” to finance its ongoing business operations while in Chapter 11 protection.

“Given CCA’s financial distress, the CCA group has, over the past several years, relied heavily upon inter-company debt financing provided by CCA’s parent, CSCEC Holding Company. As of the petition date, the balance of CCA’s inter-company obligation to CSCEC Holding is approximately $124.8m,” CCA Construction Inc said in separate legal filings.

Mr Wei, in his December 22, 2024, affidavit, asserted that a “reduction in value of new contracts and revenues” has left CCA Construction Inc “unprofitable”. An accompanying chart shows the value of “new contracts in backlog” falling from around $3bn in 2015, when Baha Mar was supposed to have been completed, to less than $500m in 2021. Over the same period, revenues fell from over $1bn to a similar level.

But, despite this and negative cash flow, Mr Wei said CCA Construction Inc has “a viable path... to regain profitability” by constructing factories for Chinese firms establishing operations in the US - only for “that growth [to be] constrained” by Mr Izmirlian’s recent court win.

“The Baha Mar litigation is far from a run-of-the-mill construction dispute, and it has nothing to do with the CCA group’s operations,” Mr Wei alleged. “It is instead an effort by the plaintiff, BML Properties, to use a three-month delay in construction by CCA Bahamas to hold all three of the defendants liable for the entire collapse of Baha Mar’s financing and the failure of BML Properties’ business plan, which stemmed from BML Properties’ decision to borrow over $2.45bn against Baha Mar’s assets.

“Baha Mar engaged CCA Bahamas as the project’s construction manager under a separate contract, and Baha Mar later released all claims arising under that contract. CCA had no contractual relationship to BML Properties or Baha Mar, and no role in the project. The only alleged basis for recovery against CCA was BML Properties’ convoluted theory of veil-piercing liability, which the trial court erroneously accepted....

“Between 2011 and the end of 2014, BML Properties had caused Baha Mar to borrow over $2bn from the China Export-Import Bank with $108m in interest coming due in 2015. Baha Mar failed to repay a single cent of the principal or interest on the loan, which was secured against Baha Mar’s assets,” Mr Wei claimed.

“In fact, following Bah Mar’s bankruptcy and insolvency proceedings, the China Export-Import Bank loan has $1bn that, to this day, remains unpaid.... The Project did not open on March 27, 2015, although construction was - by Baha Mar’s own admission - approximately 97 percent complete at that time. After March 27, CCA Bahamas continued to move the construction forward even after Baha Mar stopped paying.”

Mr Wei added that CCA Bahamas was retained by Baha Mar’s receivers to complete construction, and “did so in short order and within 4 percent of the original budget for construction, even though CCA Bahamas took over Baha Mar’s scope of work, paid hundreds of millions of dollars to Baha Mar’s own sub-contractors and vendors that Baha Mar had failed to pay,andpaid Baha Mar’s substantial back taxes and fees owed to the Bahamian government”.

Mr Wei said CCA Construction Inc and the contractor’s two Bahamian defendant entities “will argue that the trial court’s veil-piercing decision - its only basis for holding CCA liable - applied the wrong jurisdiction’s law and reached the wrong conclusion, even under the law that it did apply.

“The defendants have argued, and will continue to argue on appeal, that Bahamian law applies, given that both CCA Bahamas and CSCEC Bahamas are Bahamian entities and the entirety of the events at issue occurred in The Bahamas. Bahamian law would unquestionably preclude any liability, but even under New York law there is no basis for veil piercing,” he added.