By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s contractor yesterday asserted it is “willing to pledge” its two Nassau resorts, which have a combined value of up to $355m, as security for its appeal against Sarkis Izmirlian’s $1.642bn damages award.

China Construction America (CCA) and its two Bahamian affiliates, in filings with the New York State Supreme Court’s appeal division, effectively accepted the challenge from Baha Mar’s original developer and agreed to use both the British Colonial Hilton and its office complex, plus the Margaritaville Beach Resort, as collateral to enable them to pursue overturning the original verdict.

Mr Izmirlian last week urged the Chinese state-owned construction company and its affiliates, CCA (Bahamas) and China State Construction and Engineering Corporation (CSCEC) Bahamas, to pledge both downtown Nassau resorts as security even though the combined value of their real estate appears to be less than one-fifth of the $1.9bn surety bond that it initially sought to obtain.

CCA, describing the British Colonial and Margaritaville Beach Resort as the “only two significant assets” owned by itself and its affiliates, said that to “secure a stay of enforcement” of Mr Izmirlian’s damages award it is now prepared to pledge all the shares that provide it with ownership of the two hotels as security so the New York appeal can proceed. Genguo Ju, CCA (Bahamas) executive vice-president, asserted in an affidavit that the shares giving it ownership of both resorts were valued at $146m in the company’s most recent audited financial statements. And an appraisal conducted earlier this year had priced the combined real estate worth of the two properties at between $232.7m and $355.1m.

“CCA (Bahamas), a Bahamian company, is primarily a holding company whose only material assets are its interests in two Bahamian subsidiaries. These two subsidiaries together own two hotels in Nassau, Bahamas: The British Colonial Hotel & Office Complex and the Margaritaville Beach Resort complex.

“Earlier this year, CCA (Bahamas) obtained appraisals of the two hotels from Cushman & Wakefield and Jones Lang LaSalle (JLL). Cushman and JLL appraised the collective value of the hotels as between $232.7m and $355.1m. CCA (Bahamas) would be willing to provide those valuation reports to the court [privately] and under seal, and to make them available to plaintiff subject to an appropriate confidentiality order.”

Reasserting CCA’s position that surety financiers would not accept the two Nassau resorts as collateral for the proposed $1.9bn bond, Mr Ju added: “Nonetheless, independent of any bond, CCA Bahamas is willing to pledge its shares of its two subsidiaries as security against the judgment.

“Those shares were carried on CCA Bahamas’ books in its most recent audited financial statement at approximately $146m. CCA Bahamas would be willing to provide that statement to the court in [private] or under seal, and to make it available to plaintiff subject to an appropriate confidentiality order. CCA Bahamas intends to continue to operate the hotels in the regular course during the pendency of this appeal.”

CCA, in a statement issued yesterday, reassured that staff and daily operations at both downtown Nassau resorts will not be impacted if it ultimately does use them as appeal security. This newspaper understands that it will be business as usual, with capital investment and maintenance also not impacted while the New York appeal process runs its course - which could take between one to two years.

Nevertheless, the Chinese state-owned contractor argued that its willingness to use the two properties as collateral “underscores our confidence” that the appeal against a “fatally-flawed” New York State Supreme Court verdict - which “piled error on error” - will succeed.

And CCA challenged Mr Izmirlian and his BML Properties vehicle to drop their opposition to a stay preventing them from collecting their damages award given that it was agreeing to the very terms they have requested.

CCA and its affiliates, in a statement, said: “Our decision to provide this security not only underscores our confidence that we will prevail on appeal but also fully meets the conditions BML Properties itself proposed to the appeals court for a stay of enforcement of the trial court’s fatally-flawed decision.

“Given that the security we have offered the court is consistent with BML Properties’ proposal, BML Properties should inform the court that it agrees to a stay and allow the judicial process to take its course. As we have said previously, BML Properties brought about its own failures through its gross mismanagement of the Baha Mar project and the trial court piled error on error in finding otherwise.

“The actions we have now taken are in the best interests of all our stakeholders and, importantly, will have no impact on our operations or the operation of the British Colonial and Margaritaville Beach Resort hotels as we pursue our appeal.”

It remains to be seen, though, whether Mr Izmirlian will accept those terms and agree to a stay, or injunction, that would block him from enforcing the $1.642bn damages awarded to himself and his BML Properties vehicle until the appeal process is concluded and a verdict issued.

And, more importantly, it is also unclear whether the New York appeal court will agree to using the two resorts as surety collateral given that the appraised maximum value of their real estate - $355m - is more than $1.5bn short of the $1.9bn security that bond brokers said was required.

The Bahamian government will also have to approve pledging the two downtown Nassau resorts as collateral. One attorney, speaking on condition of anonymity, said CCA’s proposed move will require National Economic Council (NEC) and Investments Board permission as well as exchange control approval from the Central Bank.

“You need Investments Board approval to act as a mortgagee and exchange control approval to pledge an interest in those shares,” they said. However, Mark Goodman, a member of CCA’s US legal team, said his client was determined “to maintain the status quo” pending its appeal.

Responding to Mr Izmirlian’s demand that CCA post “meaningful security”, Mr Goodman asserted: “To secure a stay of enforcement against all three defendants, CCA Bahamas would be willing to pledge its shares of its only two significant assets, its ownership of two subsidiaries that own two hotels in Nassau, Bahamas: The British Colonial Hotel & Office Complex and the Margaritaville Beach Resort complex...

“This offer of security encompasses nearly all the total combined value of the three defendants. Given the imminent risk of insolvency without a stay, this security would make a stay here consistent with those granted in scores of cases nationwide.”

Mr Goodman said CCA “would agree” to also “perfect” its appeal by December 30, 2024, so the case could move forward speedily, and provide “transparency about its financial situation” through giving information to the court and Mr Izmirlian that includes the appraisal valuation of the two Bahamian resorts.

“Defendants brought this motion to maintain the status quo while this court reviews the trial court’s post-trial decision and judgment. The trial court piled error on error in awarding the real estate developer plaintiff $1.6bn in damages and pre-judgment interest against defendants, including one (CCA) that had no contractual relationship to or role in the construction project at issue,” Mr Goodman alleged.

“The trial court ignored swaths of unrebutted testimony and entire defense witnesses, mixed and matched contractual obligations without importing the attendant limitations on liability, and misapplied the same bedrock damages principles that this court corrected the trial judge on in this same case at summary judgment less than a year ago.”

He added: “Were this an ordinary case and an ordinary judgment, defendants would not need this court’s intervention to exercise their right to appeal without risking their ongoing businesses. They would post a bond and secure an automatic stay. But, because defendants are worth collectively a fraction of the judgment, they were unable to secure a bond despite diligent efforts.

“It is unsurprising, then, that if plaintiff is allowed to begin enforcement proceedings immediately, defendants will be forced into insolvency. Insolvency is not merely hypothetical, as plaintiff suggests. It is effectively certain, and it will inflict its irreparable harm by the time a full panel of this court decides defendants’ appeal.....

“Given defendants’ likelihood of success on appeal, imminent insolvency absent a stay, reasonable offer of security through CCA Bahamas’ pledge of its ownership interests in its subsidiaries, and commitment to perfect their appeal by December 30, 2024, defendants reiterate their request for a stay pending appeal.”