How the Baha Mar project collapsed

PRIME MINISTER Ingraham's expressed doubts on March 5 last year when moving a Resolution in the House of Assembly to authorise the Treasurer to transfer certain lands and buildings to Baha Mar Cable Beach Resorts, was like manna falling from heaven.

It was the excuse Harrah's Entertainment's new owners were looking for to cover the fact that they were manoeuvring behind the scenes to pull out of the $2.6 billion Cable Beach deal, while smiling coyly and announcing to the public that all stations were "go."

At first Opposition leader Perry Christie had agreed with Mr Ingraham's questioning of Harrah's commitment to the deal. "It seems to me," said Mr Christie at the time, "that Harrah's were looking for a way out and they used the speech and the words of the Prime Minister as an excuse, or part excuse for the way out."

However, Mr Christie suddenly changed his tune. Did he realise that if he let Mr Ingraham off the hook, the spotlight of blame would be on him and his government for the inordinate delays in signing the Baha Mar agreement? It didn't take Mr Christie long to rewrite his script. He urged Mr Ingraham to accept the blame and "responsibility" for setting back, "if not killing the proposal." Mr Christie, while admitting that other factors contributed to Harrah's walk out, continued to put full blame on Mr Ingraham's "intemperate language" and injecting the fear that the land conveyances for the project were in doubt. This, said Mr Christie, were the "straws that broke the camel's back."

While accusing fingers were still being pointed at Mr Ingraham, later that year a drama was being played out in a court room in New York, when the deceit of Harrah's new owners was unmasked. It was revealed that three days before signing the Heads of Agreement with the Ingraham government and making a public announcement of its intention to go ahead with the project, Harrah's new owners were plotting to pull out of the deal. This meeting took place in January. Mr Ingraham did not speak in the House until March.

Tribune Business reported allegations that the move to withdraw from the Baha Mar joint venture was directly linked to the takeover of Harrah's by two US private equity giants, Apollo Management and Texas Pacific, which purchased the gaming giant for $27.8 billion, and assumed $10.7 billion in debt, on January 28, 2008 -- three days before the supplemental heads of agreement were signed between Baha Mar and Government. Caesars Bahamas consented to the deal.

In the court case, Baha Mar alleged that Harrah's and its new owners decided to withdraw from the project to aid the former's balance sheet position, but instead of notifying its partners it looked for an excuse to withdraw. This was in January, 2008. Mr Ingraham made his remarks in the House two months later -- March 5, 2008.

And so we are left with the first part of Caesar Bahamas Investment Companies' printed complaint to its intended joint partner -- Baha Mar Joint Venture Holdings -- that "the long delays in reaching agreement with the government and completing the assemblage of the relevant land rights have contributed to considerable doubt about whether the project can be financed at all given the continuously deteriorating debt markets. These delays also raise grave concerns about increased costs and risk and create apprehension about your ability to execute in a timely manner."

Baha Mar was unable to execute in a timely manner because, as Sarkis Izmirlian told prime minister Christie in a letter on January 25, 2006: "You had given me your personal assurance that you would ensure that the Government would move to expeditiously accomplish the above (which Mr Izmirlian listed) by the New Year. Yet this did not happen." And he concluded: "If we cannot achieve the early February timeframe for accomplishing the above, I will have to inform Harrah's and Starwood that, despite my best efforts these past three odd years, the Government of The Commonwealth of the Bahamas has failed me. I certainly do not want to be known as the developer (and I'm certain you don't want to be known as the Prime Minister) that lost Caesars and Starwood. Today, more than before, I need your unambiguous support, Mr Prime Minister." This letter was dated January 26, 2006. Harrah's new owners did not come on the scene until two years later -- January 28, 2008.

As Bahamas Business pointed out, if the supplemental Heads of Agreement had been concluded with the PLP government by March 1, 2007 as they should have been, "the Bahamas, Cable Beach and Baha Mar would not be in the mess they are now in." The deal would have been airtight before Mr Ingraham won the government and Mr Christie would have been assured of his own legacy.

If the contracts had been concluded in March, 2007, "then Harrah's would likely have been locked into the Baha Mar deal and the project would have been well underway." But they were not concluded on time. A year later new buyers were in the picture and had taken over the gambling giant, the global economic situation started to look grim, and what was once a "hot" deal had turned "cold."

A major development project had collapsed, because, according to Mr Izmirlian, the Christie government had not met the promised deadlines, and as a result had lost Caesars and Starwood. The Bahamas was out in the cold, and the jobs that both governments had depended on to keep the economy moving were no more.

December 04, 2009

tribune242

Bahamas Blog Bahamas