By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s main financier last night accused the developer of “stripping from it through the back door” its $2.34 billion loan security, arguing that there was “no possibility” it could restructure via the Chapter 11 process.

The China Export-Import Bank thus joined its Chinese partner, China Construction America (CCA), in attempting to get the Delaware bankruptcy protection case thrown out - a move that appears to have bene sparked by the failure of negotiations to resolve the $3.5 billion dispute.

The bank alleged that despite two rounds of negotiations in Beijing, itself, Baha Mar, CCA and the Government had been “unable to reach a consensual resolution” as of last night.

This statement, and the timing of China Export-Import Bank’s filing, indicates that it has not accepted the $400 million proposal by Baha Mar’s chairman and chief executive, Sarkis Izmirlian, to consent to the project’s ‘divorce’ from its contractor, CCA.

Mr Izmirlian had set a self-imposed deadline of yesterday for the China Export-Import Bank to accept his offer, after Baha Mar’s negotiating team refused to attend Sunday afternoon talks on the grounds that the contractor was

“not negotiating in good faith”.

The bank’s Delaware filing, and suggestion that negotiations were either at an impasse or had broken down yet again, makes it increasingly likely that Baha Mar’s fate will be resolved through the Bahamian and Delaware courts.

The Government and Chinese are pinning their hopes on the Supreme Court, which has already ruled in their favour once, and is scheduled to hear the former’s bid to wind-up Baha Mar on Friday.

The developer, meanwhile, wants Delaware to be the centre of all legal action, with the Bankruptcy Court having already ruled in its favour on several preliminary matters - including yesterday’s verdict that increased by one week the time for it to respond to CCA’s bid have the Chapter 11 action thrown out.

Court documents obtained by Tribune Business last night show that Baha Mar has retained Maurice Glinton QC to represent it, and defend its interests, against the Government’s winding-up petition before Justice Ian Winder.

Mr Glinton will work in parallel with Baha Mar’s other Bahamian attorneys, Glinton, Sweeting & O’Brien, who will focus on giving the Delaware Court’s rulings legal effect in the Bahamas.

Meanwhile, drawing the battle lines still further, the China Export-Import Bank alleged that “the lack of any meaningful connection” between the 14 Bahamian-domiciled Baha Mar companies and the US was “glaring”.

It argued that this, together with the fact that all Baha Mar’s assets and the majority of its creditors were in the Bahamas, acted as “an obstacle to a successful reorganisation” under US Chapter 11 laws.

“Without the ability to assert jurisdiction over or enforce orders against the Bahamian debtors’ assets and creditors, this court simply cannot effect the relief necessary to enable these debtors to restructure their businesses and liabilities,” the China Export-Import Bank argued.

“In these circumstances, dismissing the Chapter 11 cases is in the best interests of the Bahamian debtors and their creditors.”

It added that creditors had ‘a reasonable expectation’ that their relationship with Baha Mar would be governed by Bahamian law, not US bankruptcy law, adding that the developer’s assets “cannot be divorced from Bahamian land or law”.

“Any creditor who lent under these circumstances never would have expected that its bargained-for rights might suddenly be stripped from it through the back-door of a US chapter 11 case,” China Export-Import Bank alleged.

“By commencing their chapter 11 cases in the US, the Bahamian debtors upset the reasonable expectations of all their foreign creditors. These foreign creditors, by doing business in the Bahamas, recognised that they would be subjecting themselves to Bahamian laws.

“Indeed, the Bahamian debtors granted liens on their assets in the Bahamas pursuant to security documents governed by Bahamian law,” the bank added.

“Moreover, the Bahamian debtors should not be permitted to use their Chapter 11 cases as a mechanism to alter foreign creditors’ rights and priorities under Bahamian law, or to increase leverage in out-of-court negotiations with the Bahamian Government, China Export-Import Bank and other foreign creditors.

“These chapter 11 cases constitute an attempt by the Bahamian debtors to conduct an end-run around the creditors’ reasonable expectations and should not be recognized by this Court.”

The China Export-Import Bank said Baha Mar had unsuccessfully attempted to “put some legs” on the Chapter 11 proceedings by seeking their recognition from the Supreme Court.

“Because this court lacks the ability to bind the Bahamian Government and other foreign creditors over whom this court has no personal jurisdiction, there is no possibility of a successful reorganisation here,” China Export-Import Bank alleged.

“Postpetition liens cannot be enforced, transfers will not be recognised, postpetition financing is unavailable, and any Chapter 11 plan and purported discharge will be ineffective.

“Without the support of both the Bahamian courts and the Bahamian Government, the Bahamian debtors [Baha Mar] cannot accomplish the objectives of Chapter 11.”

It continued: “Dismissal of these Chapter 11 cases, however, will clear the path to an efficient and fair restructuring of the Bahamian debtors under Bahamian law, with the full support of the Bahamian Government and Bahamian courts......

“Accordingly, this court should refuse the Bahamian debtors’ invitation to apply US bankruptcy law in blatant disregard for the paramount interests of the Bahamian Government and the reasonable expectations of their creditors and, instead, find that the totality of the circumstances warrants dismissal of the Bahamian Debtors’ chapter 11 cases”

China Export-Import Bank said that its $2.45 billion loan facility is secured “on substantially all” of Baha Mar’s assets, including its real estate and hotel buildings.

It argued that the debenture governing the loan agreement was governed by Bahamian law, and said the Supreme Court’s recognition refusal “means that orders entered by this [Delaware] court with respect to the Bahamian debtors and their assets effectively have no force or effect in the Bahamas.

“For example, any liens granted over the Bahamian debtors’ assets by this court under the interim Debtor-In-Possession Order or that may be granted in the future under a final DIP order would not be enforceable against property located in the Bahamas,” the bank argued.

“Likewise, any priorities granted by order or under the Bankruptcy Code will not be recognised or enforced. Additionally, any order approving a sale or transfer of substantially all of the Bahamian debtors’ assets, whether pursuant to a chapter 11 plan or a section 363 sale, will also be meaningless as against property located in the Bahamas, effectively crippling the transaction.

“Furthermore, should a creditor in the Bahamas who is not subject to this Court’s personal jurisdiction exercise its rights against the Bahamian debtors’ properties, it could do so with impunity. Similarly, any restructuring of debt under a chapter 11 plan and the ultimate discharge will not be enforceable.”

In other words, China Export-Import Bank is arguing that any Chapter 11 ruling will not be binding on events or parties in the Bahamas.