China Eximbank provides $2.45 billion loan for Baha Mar Resort Construction Project (Linked to Record ID#39721)

Project narrative

On March 31, 2010, Baha Mar Ltd. — a project company and special purpose vehicle — entered into a $2.45 billion secured loan facility agreement with China Eximbank for the Baha Mar Resort Construction Project. The $3.5 billion Baha Mar Resort and Casino Project consisted of, among other things (a) a $2.45 billion secured debt facility provided by the Export-Import Bank of China; (b) a $150 million preferred equity commitment provided by a subsidiary of CSCEC, China State Construction Engineering Corporation (Bahamas) Ltd. (“CSCEC (Bahamas)”); and (c) an $850 million common equity investment by the Developer (a prominent resident of the Island, Sarkis Izmirlian). The common equity investment of the Developer consisted of cash, land for the Project along Cable Beach and the three hotels then-operating thereon, as well as other commitments. The China Eximbank facility agreement carries the following borrowing terms: an interest rate of LIBOR plus a 3.9% margin, a 15 year maturity, and no grace period. The loan’s final maturity date is January 31, 2026 (the fifteenth anniversary of the first utilization (disbursement) date, which was January 31, 2011). Penalty interest on any overdue amounts is payable at a rate of 1 percent above LIBOR plus a 3.9% margin. The borrower was expected to use the loan proceeds to finance a commercial contract ('Master Construction Contract') between Baha Mar Joint Ventures, Ltd. and China State Construction Engineering Corporation, Ltd. (CSCEC), which was signed on March 9, 2009. The debtor and creditor negotiated 4 security and pledge agreements, including without limitation: (a) Debenture between Baha Mar Ltd and certain of the other Debtors, as Chargors, and Citibank, N.A., Bahamas Branch (the “Onshore Security Agent”), dated as of January 31, 2011, in which Chargors pledged bank accounts, real property, plant and machinery and intellectual property rights; (b) Security Agreement between Northshore Mainland Services Inc., as Security Provider, and the Offshore Security Agent, dated as of January 31, 2011, in which the Pledgor pledged all personal property, including but not limited to all bank accounts; (c) Owner Packages Account Pledge, between CCA Bahamas Ltd., as Security Provider, and the Offshore Security Agent, dated as of January 26, 2011 in which CCA Bahamas Ltd. pledge certain accounts; (d) Deposit Accounts Pledge Agreement between Baha Mar Ltd., Baha Mar Properties Ltd., BMP Three Ltd., Cable Beach Resorts Ltd., and Baha Mar Enterprises Ltd., as Security Providers, and the Offshore Security Agent, dated as of January 31, 2001, in which the Security Providers pledged certain accounts. As of June 29, 2015, the loan's total (principal) amount outstanding was $2,337,876,519. The purpose of the project was to construct the Baha Mar Resort, a 1,000-acre (400 hectare) resort complex on the island of New Providence in The Bahamas. Once completed and fully operational, the project was expected to include the following four new hotels with 2,323 guest rooms (inclusive of 284 condos and villas), a casino, and a convention center: (a) Baha Mar Casino & Hotel: A 100,000 square foot Las Vegas-style casino and premiere hotel with 1,068 rooms and suites, designed to appeal to international casino clientele, and boasting dedicated VIP entrances, suite levels, and VIP/premium gaming areas. The Baha Mar Resort is located in Nassau in the Bahamas. Once the project was completed, the Baha Mar Casino & Hotel was to be operated by GGAM Bahamas Holdings, LLC. (b) The Grand Hyatt Hotel® and Convention Center at Baha Mar: A premiere hotel with 733 rooms and suites designed to cater to business guests utilizing the connected convention center, which boasts 84,000 square feet of standalone, flexible facility space capable of accommodating large-scale performances, events and conferences, including three ballrooms of 33,000, 18,000, and 15,000 square feet, and 18,000 square feet of additional meeting and board rooms allowing the convention center to accommodate a variety of events concurrently. Once the project was completed, the Grand Hyatt Hotel® and Convention Center at Baha Mar was to be operated by Hyatt Services Caribbean LLC. In addition, the hotel has certain for-sale residential condominium units, a number of which are under contract. (c) The Rosewood® at Baha Mar: A “luxury” hotel with 232 rooms and suites designed to appeal to upscale guests, featuring its own ballroom, meeting facilities, private spa and salon. Once the Project is completed, Rosewood® at Baha Mar will be operated by Rosewood Hotels & Resorts LLC. In addition, the hotel has certain for-sale residential condominium and villa units, a number of which are under contract. (d) The SLS Lux® at Baha Mar: A “lifestyle” hotel with 299 rooms and suites designed to appeal to younger guests who prefer a more modern and trendy hotel. Once the project was completed, the SLS Lux® at Baha Mar was to be operated by SBE Hotel Management LLC. In addition, the hotel has certain for-sale residential condominium and villa units, a number of which are under contract. China Construction America (CCA) -- a subsidiary of China State Construction Engineering Corporation (CSCEC) -- was appointed as the main contractor for the project. The project sponsor (BML Properties) and CSEC jointly developed the project. CSCEC took a minority ownership stake in the project. A formal groundbreaking ceremony took place on February 21, 2011. Then, on November 11, 2011, traffic on West Bay Street was diverted to flow freely around the perimeter of the project site. On June 9, 2014, fifty CCA workers protested outside the Chinese Embassy in Nassau, claiming that they had not been paid in six months. Then, on August 1, 2014, Baha Mar Ltd announced that the grand opening of the resort would not take place in December 2014 (as originally scheduled). On October 1, 2014, Bahamian contractors disclosed that it was 'a grind' to obtain timely payment from CCA for work done on the Baha Mar project, with wait times of 90-120 days affecting their cash flow and eating into already-thin profit margins. Then, on March 24, 2015, Baha Mar Ltd issued a statement saying the resort’s opening will have to be pushed back, claiming inferior quality work by CCA. By June 2015, the project had achieved a 97% completion rate. However, on June 30, 2015, Baha Mar Ltd announced that it has commenced a claim in the English High Court in London against CCA’s parent company, CSCEC, seeking $192 million worth of damages for late payments and poor workmanship. Then, after temporarily suspending work, CCA returned to Baha Mar site to assess the work needed to complete the project in September 2015. At the time, 120 local Bahamian contractors were demanding payments worth $74.3 million for work already done before resuming work on the resort. The Baha Mar resort officially opened on April 14, 2017 and a certificate of substantial completion was issued to CCA Bahamas, Ltd. on July 31, 2017. However, the resort did not begin taking paying guests until June 1, 2018. The project's originally scheduled construction commencement date was September 19, 2011 and its originally scheduled construction completion date was December 8, 2014. The resort was originally expected to open on March 27, 2015 The China Eximbank loan that was issued for the project has financially underperformed vis-a-vis the original expectations of the lender. On June 29, 2015, with the Baha Mar resort 97% complete, Baha Mar Ltd., the developer of the resort, filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Wilmington, Delaware. The underlying cause of the filing was a commercial dispute between Baha Mar Ltd. and its construction company. A U.S. judge dismissed the Chapter 11 case brought by Baha Mar Ltd. on September 15, 2015 (537 B.R. 192). Then, on July 16, 2015, the Attorney General of the Government of The Bahamas filed a 'winding up' action against Baha Mar Ltd. and numerous of its affiliates, including BML Properties, Ltd. The Supreme Court of the Government of The Bahamas (the trial level court), upon the stipulation of the Attorney General, 'struck out' (namely dismissed) the winding up petition against BML Properties, Ltd. (and certain other Baha Mar Ltd. affiliates) in a ruling dated September 4, 2015. Nearly months later, on October 30, 2015, China Eximbank -- pursuant to the secured loan facility agreement that was signed on March 31, 2010 -- commenced proceedings in the Bahamas to appoint a receiver to marshal the assets of Baha Mar Ltd. and its subsidiaries, exercised its rights under the Pledge Agreements dated January 2011 (in which, inter alia, BML Properties, Ltd. pledged its shares in Baha Mar Ltd. as collateral for the loan proceeds provided under the secured loan facility agreement that was signed on March 31, 2010), and thereby took control over the entirety of the common shares of Baha Mar Ltd. that had previously been owned and possessed by BML Properties, Ltd. Then, in November 2015, the Bahamas Supreme Court named Deloitte & Touche LLP as a receiver to Baha Mar Ltd. at the request of the Export-Import Bank of China, which is a primary creditor having made a $2.45 billion loan to Baha Mar Ltd. in 2010. In March 2016, the receiver engaged Colliers International, an international real estate firm, to actively market the resort to a new owner. On August 23, 2016 the Prime Minister of the Bahamas, Perry Christie, announced that the Government of the Bahamas and the Export-Import Bank of China had signed an agreement to complete construction of the Baha Mar mega-resort. Construction at the resort had been stalled for 20 months. The Export-Import Bank of China created a special purpose vehicle (SPV) called Perfect Luck Holdings Limited to purchase Baha Mar’s real estate assets out of receivership, which was the first step towards completing the project’s physical construction prior to its sale to the ‘ultimate buyer’. At the same time, the original Baha Mar companies were placed into full liquidation under the supervision of the Supreme Court and the former provisional liquidators. These two developments threatened to cost Sarkis Izmirlian and his family their total $800-$900 million equity investment in building up the Baha Mar project over the past 13 years. Then, on August 22, 2016, China Eximbank and the Government of Bahamas signed a 'Heads of Terms Agreement' to facilitate the remobilization, completion of construction, and the opening, operation and eventual sale of the Baha Mar Resort -- a part of which involved setting up a fund to pay the majority of the Bahamian unsecured creditors (including the utility providers) in return for which the Government of the Bahamas granted valuable tax and others concessions. The 'Heads of Terms Agreement' provided for the following: (i) a commitment by the China Eximbank to the immediate resumption and completion of construction of the resort, and the opening of the Casino, Casino Hotel, Convention Centre and Golf Course; (ii) a commitment from China Eximbank to fund the remaining construction costs; (iii) the establishment of a voluntary fund of $101.5 million to pay the majority of unsecured creditors, including Bahamian government utility corporations; (iv) the establishment of a Claims Committee to oversee the payment process for unsecured creditors; and (iv) the establishment of deadlines for the commencement of construction, and the completion of various steps needed to accomplish the completion, opening and sale of the Resort. Effective November 30, 2016, Chow Tai Fook Enterprises Limited (CTFEL) -- a hotel owner, property developer, and business conglomerate in Hong Kong -- and CTF BM Holdings Ltd. (a subsidiary of CTFEL) entered into a share purchase agreement with China Eximbank and Perfect Luck Investments Limited for the sale and purchase of the Baha Mar Project. Then, on December 26, 2017, BML Properties, Ltd. filed a lawsuit in New York Supreme Court, New York County, Commercial Division, alleging the China Construction America Inc. (later renamed CCA Construction, Inc.) and CCA Bahamas, Ltd. engaged in fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing. The plaintiff alleges that the defendants—who invested in and served as construction manager of the Baha Mar project—concealed their intent and knowledge that they would not construct the complex on time and on budget, in violation of New York’s common-law prohibition on fraud and the defendants’ contractual obligations. The defendants claim that that the alleged fraud and delay resulted in (a) the Government of the Bahamas initiating liquidation proceedings, and (b) China Eximbank, which partially financed the project, initiating receivership proceedings, seizing plaintiff’s ownership stake in Baha Mar, and selling Baha Mar’s assets to Perfect Luck Holdings Limited (an entity owned by China Eximbank). The plaintiff also alleges that Perfect Luck Holdings Limited subsequently re-engaged the defendants as the project's construction manager, awarded them lucrative work packages, and attempted to amend the contracts that had originally governed the parties’ relationship. In October 2024, Judge Andrew Borrock of the New York Supreme Court ordered China Construction America Inc. to pay $1.6 billion in damages to BML Properties, Ltd. He found the China Construction America Inc. had 'committed fraud beyond any doubt.' He ruled that China Construction America Inc.'s fraud and contract breaches had cost BML Properties, Ltd. its entire $845 million investment in the luxury resort. In addition to restoring BML Properties, Ltd.'s investment, the judge awarded interest dating back to May 2014. Bloomberg quoted a legal representative of BML Properties, Ltd. as saying, 'This is a major vindication for Mr Izmirlian. It’s been a long time coming.' China Construction America Inc. responded by requesting a stay of enforcement while it carried out an appeal against what they described as the trial court’s 'wrongful decision.'