Last updated: 10:47 AM ET, Thu July 30 2015

Five Things to Know About the Baha Mar Battle

Hotel & Resort | Brian Major | July 22, 2015

Five Things to Know About the Baha Mar Battle

The construction delays and disputes that led to the stalled opening of the $3.5 billion Baha Mar mega-resort have progressed from winter to late summer, as the saga that began with the property's missed December debut took another turn Wednesday.

It remains to be seen whether the tumultuous impasse can be resolved. All parties involved have endured a painful period of disappointment and frustration, with seemingly more to come. Here are five things to know about Baha Mar’s battles ahead.

The Latest: On Wednesday, the Bahamas Supreme Court refused Baha Mar Ltd.’s application for Chapter 11 bankruptcy proceedings to be recognized in the Bahamas jurisdiction.

The Bahamas Tribune reported that Justice Ian Winder “further dismissed Baha Mar's request for alternative relief that would temporarily stay creditors from acting against the resort's developer.” A detailed decision in writing will be issued within two weeks, Winder  said.

The move appears to impact Baha Mar CEO Sarkis Izmirlian’s decision to file Chapter 11 proceedings in a U.S. court. Nevertheless Baha Mar officials said Wednesday they will continue “direct discussions with the relevant constituencies and stakeholders to ensure the survival of Baha Mar.”

“We respect Justice Winder’s ruling and look forward to understanding his reasoning, but we are nonetheless disappointed by the result,” the officials said in a statement.

“We do not believe today’s ruling, for which the government strenuously argued, assures the necessary protection of the assets of Baha Mar, and we do not believe it is best for the 2,500 current employees of Baha Mar. We note that the stay granted by the U.S. Bankruptcy Court remains in effect.”

It’s about money: China's Export-Import Bank (Eximbank) bankrolled the lion’s share of the Baha Mar project with a $2.45 billion loan. The Izmirlian family invested more than $900 million in the project. In court filings, Baha Mar representatives allege the primary builder, China Construction of America, Inc. (CCA) missed procurement and reporting deadlines from the start of construction in 2011.

These and other factors steadily drove cost overruns. Ultimately Baha Mar Ltd. officials say in January they paid $54 million to resolve disputed claims, yet problems continued until CCA stopped work on the resort in March.

Meanwhile Baha Mar Ltd. officials say they spent in excess of $4 million per month between January and April hiring staff, launching marketing and advertising campaigns and purchasing food and beverage supplies.

Eximbank has also refused to advance $112 million in earmarked project funds, said Baha Mar president Tom Dunlap. He also said the project’s many delays led Baha Mar’s hotel partners, Rosewood Resorts, Hyatt Hotels and SLS Lux, to postpone contributions of up to $52 million they were scheduled pay the developer prior to the project’s opening.

CCA officials have a different interpretation, saying Baha Mar Ltd.’s “failure to secure adequate financing and mismanagement of the design” was the source of any construction issues. “This includes replacing the principal architect after construction had commenced, late and incomplete delivery of design packages and over 1,300 construction change directives,” they said.

CCA and its Bahamian subcontractors “have performed nearly $72 million of contract work for which we have received no payment” since February, the officials added. “Our aggregate investment in and commitment to the project, including money advanced on behalf of the developer, approximates $220 million.”

The resort is mostly complete: Incredibly, all sides agree the resort property itself is more than 95 percent complete. It seems unlikely, even within this increasingly bitter dispute, that an almost-finished resort on a key Bahamas beachfront will fail to launch. "For the sake of all concerned, not least our employees, it must happen," Baha Mar officials said in their most recent statement.

Some local media reports have pointed to flawed construction work which needs to be repaired, but it seems only minor changes are required. Despite the disputes over cost and delays, CCA and Baha Mar officials have at least agreed the resort can and should open soon. "CCA remains committed to working with the Bahamian government to arrive at a viable plan that results in the expedited opening of this landmark project," officials said earlier this month.

Kicking sand: Their agreement on the resort’s need to open hasn’t stopped the parties from taking public shots at one another. Izmirlian and Baha Mar Ltd., along with CCA, Eximbank and the Bahamas government, have all been the subject of barbs from one or more of the other parties.

Treated as a hero by hundreds of members of Baha Mar’s now-idle workforce in a local demonstration earlier this month, Izmirlian and Baha Mar officials have nevertheless repeatedly assailed CCA, Eximbank and the Bahamas’ government.

“We are disappointed in the way the government has responded to our Chapter 11 filing over the past several weeks,” said Baha Mar officials in the statement following Wednesday’s ruling. “We hope the government will stand by its word to be an impartial mediator in our efforts to protect our investment and bring the project to completion.”

Bahamas officials in turn charge Izmirlian’s Chapter 11 filing in a U.S. court is an affront to the country’s sovereignty. “Were the processes to continue in the U.S., the fate of this Bahamian project, its Bahamian employees and the international reputation of the sovereign nation of the Bahamas would be in jeopardy,” said Perry Christie, the Bahamas’ prime minister.

CCA officials meanwhile point the finger of blame squarely at Baha Mar officials. “Baha Mar Ltd.’s recent public attempt to shift responsibility away from itself and blame CCA Bahamas and our subcontractors for the delays in the project’s completion is misleading and dishonest,” they said in a statement.

What’s next: Things could really become messy. At present there is no agreement, the clock is ticking on the project’s stay via the US Chapter 11 filing, and it’s not completely clear if negotiations are even ongoing. If there is light at the end of the tunnel, it’s Baha Mar's contention that its officials are “making progress toward reaching a consensual resolution.”

One thing is certain: Employees, subcontractors, hotel partners and travelers stand to lose millions of dollars, along with livelihoods and reputations, every day the mega-resort remains shuttered.

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