CCA puts up Bahamas hotels as security | News

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China Construction America (CCA) has pledged two Nassau hotels it says are worth between $232.7 million and $355.1 million combined as security for a stay pending an appeal of a New York court’s $1.6 billion judgment against the company.

Last month, a New York judge awarded the sum to Sarkis Izmirlian’s BML Properties Limited after finding that CCA and affiliated companies committed fraud and ultimately forced BML out of its Baha Mar investment.

CCA has appealed that ruling and received an emergency interim stay on the judgment.

In documents filed in support of the stay in a New York appeals court yesterday, CCA’s attorney Mark Goodman said the defendants have been unable to secure a bond because they are worth a fraction of the total awarded judgment. He said CCA would be forced into insolvency if the court allows the judgment to be enforced immediately.

“Insolvency is not merely hypothetical, as plaintiff suggests,” CCA’s attorney said. “It is effectively certain, and it will inflict its irreparable harm by the time a full panel of this court decides defendants’ appeal.”

CCA said it is willing to provide the court — in chambers or under seal — the financial information on which its arguments are based.

It said it will agree to a stay condition that the appeal be perfected, or ready to be heard, by December 30, 2024.

“Third, as security to stay enforcement of the judgment against defendants, CCAB (China Construction America Bahamas) would be willing to pledge its shares comprising 100 percent ownership interest in its subsidiaries that own two hotels in Nassau, Bahamas,” Goodman said.

“Those shares were carried on CCAB’s books in its most recent audited financial statement at $146 million.”

Goodman said the hotels — British Colonial and Margaritaville Beach Resort – were recently appraised by Cushman & Wakefield Inc. and Jones Lang LaSalle Inc. at valuing between $232.7 million and $355.1 million. CCA’s attorney said this offer of security encompasses nearly all the total combined value of the three defendants.

Justice Andrew Borrok of the Supreme Court of the State of New York found that China State Construction Engineering Corporation Bahamas (CSCECB) committed material breaches of the parties’ investors agreement by requesting $54 million from BMLP to pay subcontractors, but instead used it to purchase the Hilton hotel in Downtown Nassau.

In addition to the $1.6 billion in damages awarded to BML, CCA is also subject to a daily interest rate of some $400,000.

CCA maintains there were multiple legal errors in the ruling, which it will argue on appeal. One of these arguments is the position that CCA did not defraud BML when it promised that Baha Mar would be substantially completed by March 27, 2015.

“As an initial matter, that mischaracterizes the evidence: The March 27 opening explicitly depended on factors outside CCAB’s exclusive control, and CCAB promised only to use its ‘best efforts’ to achieve that date,” Goodman said in yesterday’s filing.

“But even accepting the trial court’s erroneous factual findings, the fraud claims fail as a matter of law. A ‘statement of future intentions,’ like the one the trial court purported to identify, is not fraudulent unless the speaker ‘never intended to honor or act on it’.

“The trial court made no finding that CCAB believed it could not achieve substantial completion by the March 27 date.”

Goodman said CCA “undisputedly believed it would meet and had every intention of meeting” the March 27, 2015 completion date, adding that both parties in the case testified that the construction was 97 percent complete as of that date.

Goodman also argued that the New York judge incorrectly found that the defendants’ conduct caused the missed opening date, purportedly leading to BML’s liquidity crisis, which Izmirlian’s company responded to by filing BML for chapter 11 bankruptcy.

CCA’s attorney said even if that were true, it does not prove causation, adding that “between the chapter 11 filing and the loss of equity lay a series of events,” all of which were caused by third parties and Izmirlian.

He said this includes “the Delaware bankruptcy court’s dismissal of the chapter 11 case; plaintiff’s own refusal to provide the financial guarantee necessary to secure financing to restart the project, despite a contractual obligation to fund cost overruns; plaintiff’s failure to make an offer for BML’s assets acceptable to the Bahamian court-supervised receivers; the receivers’ sale of BML’s assets to a third party, and the Bahamian Supreme Court’s liquidation order.”

Goodman added, “The trial court did not find that defendants’ purported fraud or breach of contract caused any of those events. Nor could the trial court have found that defendants controlled either the U.S. bankruptcy court or the Bahamian Supreme Court, such that those courts’ independent decisions can be considered to have been caused by defendants.”

CCA’s attorney said BML’s liquidity crisis was of its own doing.

“Before March 27, 2015, BML had drawn down over $2.3 billion on its loan, the lending bank notified BML it could draw down no more unless it put in $70 million additional equity, and the lending bank calculated a $200 million cost overrun.”

Meanwhile, Goodman said, CCA was under its construction budget.

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