Source: 'Massive cost overruns' at Baha Mar force rethink of project

Sun, Oct 25th 2015, 11:57 PM

The "massive cost overruns" at the Baha Mar megaresort have raised questions about whether or not the debt associated with the project could ever be repaid, Guardian Business understands, and in the wake of the mass firing of 2,020 people, the future of the entire project has come into question.

It has been the consistent mantra of all involved that the main goal is to get the project open and making money, but highly-placed sources who spoke on condition of anonymity because they were unauthorized to speak to the press about the matter have said that even if the project were to open now in its projected state, it is uncertain that the mounting debt associated with the "massive cost overruns" on the project could ever be repaid.

The firings announced last Thursday underline the dire situation facing the partners in the multibillion-dollar development, and the joint provisional liquidators appointed by the Supreme Court have confirmed that negotiations between those parties are not moving as speedily as the liquidators would like. This has touched off another storm of speculation, at the heart of which is what the resort will look like when it does reopen.

In addition to that, the amount of money required to restart the construction and complete the project started at about $400 million, according to a letter from Baha Mar CEO Sarkis Izmirlian to the Export-Import Bank of China and copied to Prime Minister Perry Christie. It has likely grown far beyond that amount by now.

It is increasingly evident that if the shuttered resort is to open, it will not be in the pre-June 29 form. And, now, weeks after Rosewood made it clear it wants out of its relationship with Baha Mar, word has surfaced that Hyatt, yet another of the brand partners, wants out. This is not the first time Hyatt has made news in the matter. In July, two lawyers from high-powered U.S. law firm Sheppard, Mullin, Richter & Hampton LLP entered appearances as counsel for Hyatt Services Caribbean LLC in the Baha Mar bankruptcy proceedings in Delaware.

Guardian Business has reported that Hyatt Services Caribbean LLC is the Delaware-based limited liability company that was expected to manage the Grand Hyatt Hotel and Convention Center at Baha Mar upon completion. It is an affiliate of Hyatt Hotels Corporation. Guardian Business sources say, however, that Hyatt has indicated a desire to be part of the project moving forward, with "the new people". The most recent round of multi-party negotiations covered two days, and although Izmirlian was present for the first day of negotiations, his absence from the second day of talks was noted.

Guardian Business was told that the likelihood of restructuring would mean that it would be "pretty fair" to imagine that Izmirlian will not be in the same role at the end of any restructuring. It is understood that there is some questioning of the amount of money Izmirlian claims to have invested in the project, and some suspicion that he may be seeking a way out.

"Pushed out could be translated as cut your losses," one source said.

Some suspect that was the ultimate motive behind Izmirlian seeking bankruptcy protection in Delaware in the first instance - as a means to try to get out from under what appears sure to be a crushing debt burden. And as for the form that restructuring might take, Guardian Business sources say there are three elements of the project that are considered "a must" in order for it to succeed: a convention hotel, a casino operator and a golf course operator. It is possible therefore that the restructured Baha Mar would consist of only those components.

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