A plan to reorganize and pull LandSource Communities out of bankruptcy debt free would leave its main creditors, who are owed roughly $1 billion, with as much as 85% of the company, Lennar with 15%, and a partnership that now owns 68% of the company with nothing.

Under the proposed plan, which was filed March 20 in U.S. Bankruptcy Court in Delaware, Barclays and its syndicate of several hundred lenders would forgive its $1 billion lien in return for the lion's share of the company.

Lennar, which now owns 16% of LandSource, would spend $140 million in return for 15% of the reorganized company; out-right ownership of several significant developments now held in LandSource, and settlement of some Lennar-related claims.

Lennar would also have the right to buy up as much as 10% more of the newly reorganized company for $55 million by April 15. The land Lennar would gain title to through its investment includes Mare Island, Kingwood/Royal Shores, Placer Vineyard, and interests in Lennar Bridges and HCC Investors.

The reorganization plan, which requires approval by creditors and the court, also calls for a non-public rights offering for shares in the newly reorganized LandSource to be sold to generate capital. Barclays would buy whatever isn't farmed out to other investors.

The plan, if approved, would give Lennar one more coup for its financial trophy belt, an example of its ability to reset land costs by selling high and buying back low. Lennar managed to sell off 68% of its interest in LandSource, two years ago as the market was tanking, netting itself close to $700 million in badly needed cash.

If the plan is approved, Lennar will be buying back the land, plus interest in LandSource, at a much lower price. While MW Housing Partners, the company that bought the 68% of LandSource from Lennar and LNR Property, appears to be losing its investment. MW Housing Partners was a partnership between the California Public Employees' Retirement System (CALPERS), Weyerhauser, and MacFarlane Partners.

LandSource Communities was formed in November 2003 as a joint venture between Lennar Corp. and LNR Property Corp. Lennar and LNR formed the company to make strategic acquisitions and act as a holding company for land. In January 2005, LandSource spent about $1 billion to buy Newhall Land and Farming Co., the developer of two communities on prime land in the Santa Clarita Valley 30 miles north of Los Angeles.

LandSource made some improvements to the land, including getting some more entitlements on the land, and then in February 2007 sold off most of its interest to MW Housing Partners. At the time, the land had a book value of $1.3 billion, but it was refinanced for $2.6 billion to reflect its increased value over three years. The refinancing allowed Lennar and LNR to each net $660 million in cash while retaining 16% ownership each, the rights to build on the land in the future, and "significant" management fees for the land. By the end of 2007, LandSource's value had dropped like a rock, causing the company to default on its loan payments and eventually forcing it into Chapter 11.

The engineer of Lennar's deal to sell off the majority of LandSource to MH Housing Partners was Emile Haddad, Lennar's mega land dealmaker. Haddad has far from disappeared from the picture. The bankruptcy reorganization proposal mentions that the newly reorganized LandSource could end up under his management.

Learn more about markets featured in this article: Los Angeles, CA.