Nassau, Bahamas — After months of uncertainty, Bahamas megaresort Baha Mar announced on Monday that it had filed for chapter 11 bankruptcy in the US district of Delaware and warned that it would have to cut jobs if it does not resolve the matter “in the next few weeks”.
“The board of directors has determined that due to the financial consequences of the repeated delays by the general contractor, and the resulting loss of revenue, the chapter 11 process is the best path to provide the time to put in place a viable capital structure and working relationships to complete construction and successfully open Baha Mar,” the resort said in a statement.
Baha Mar Ltd will file an application in the Supreme Court of The Bahamas seeking approval of the US court orders, the statement added.
The $3.5 billion resort has been delayed three times, and Baha Mar CEO Sarkis Izmirlian has charged that its contractor, China State Construction America Bahamas Ltd, is to blame.
“The people of The Bahamas should no longer have to endure the adverse effects of the general contractor not fulfilling assurances regarding the completion of Baha Mar’s construction, forcing in turn embarrassing delays of Baha Mar’s opening,” Izmirlian said in the statement.
“Nor should members of the travel industry and guests continue to face understandable frustration and disappointment caused by the failure to complete construction.
“All of this now stops with and can be remedied through the chapter 11 process.”
The Export-Import Bank of China is financing the resort.
Not long after the statement from Baha Mar was sent out, hundreds of Baha Mar employees were sent home with no indication of when they would be called back on the job.
According to a letter Izmirlian sent the workers, they will still be paid.
There are approximately 2,000 employees at Baha Mar.
Izmirlian has traveled to China twice in recent months in an effort to salvage the Baha Mar deal.
He said in the statement sent out on Monday he believes a solution is possible among “existing parties”.
“To position ourselves to achieve that goal, and to allow time to explore a consensual solution, Baha Mar will continue for a period to operate and fund payroll,” he said.
“We will do our very best to continue to engage the resort’s lender to reach a consensual resolution that assures our ability to complete construction and open successfully.
“However, if we cannot reach a consensual resolution in the next few weeks, we will have to make some extremely difficult decisions that would include workforce reductions.”
Chapter 11 bankruptcy “provides for reorganization, usually involving a corporation or partnership”, according to uscourts.gov.
“A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time,” the website added.
By filing for chapter 11 bankruptcy, Baha Mar said it has subjected itself to the supervision of the US Bankruptcy Court and has obtained the numerous protections available to the company under the US Bankruptcy Code.
These include, among other things, protection from creditor actions and claims against the company, and all of its assets or property, wherever located.
Court documents show that Baha Mar has more than 1,000 creditors.
Prime Minister Perry Christie said less than two weeks ago that he had received “good news” about the resort.
He later warned of “payroll” issues at the resort.
Christie said resolving Baha Mar’s issues is the “single greatest obligation” he has right now in terms of daily governance.
Baha Mar was originally set to open in December 2014, then March 2015 and then the first week in May.
But Izmirlian said he is committed to moving Baha Mar toward a successful opening.
“I am confident that, once opened, Baha Mar will be a world-class destination resort that will attract guests from around the world and serve as a key economic sparkplug to The Bahamas,” he said.
“The chapter 11 process provides the appropriate venue to create a viable financial structure that places Baha Mar’s interests foremost.
“The general contractor repeatedly has missed construction deadlines.
“This has caused both sizeable delay costs and forced the resort to postpone its opening. Unable to open, the resort has been left without a sufficient source of revenue to continue our existing business.
“In fact, after the general contractor made a guarantee to us in November 2014, and then again in January 2015, that Baha Mar would be able to open in its entirety on March 27, 2015, we undertook all preparations necessary for this promised opening date, including significant hiring and training of nearly 2,000 employees and purchasing of goods and services.
“Indeed, even when we subsequently found out that the March 27 deadline was not feasible because the general contractor had still not completed construction, rather than simply downsizing, we maintained our employment levels in anticipation of a revised opening date, utilizing our financial resources to pay employees to continue their work at the project and participate in volunteer activities around the island for the benefit of the country.
“At the same time, we sought the help of Baha Mar’s major lender to bring to fruition the completion of construction and the successful opening of Baha Mar, including informing both the lender and the general contractor of our willingness to invest more of our own funds to help cover the delay costs.
“Unfortunately, our efforts, as well as those of the Bahamian government, have not accomplished that objective.
“Construction on the project remains incomplete and, consequently, we have not been in a position to set a revised opening date. Thus, the chapter 11 process is the best path for Baha Mar to now undertake.”
Izmirlian thanked Christie and his government for their “efforts” to support Baha Mar.
“The process on which we now are embarking is a path, not a destination, for us to achieve our priority of completing construction and opening Baha Mar as a leading premier international resort in The Bahamas,” he said.