A bankruptcy court judge in Delaware over the weekend signed off on a plan to refinance LandSource Communities' debt and provide the company with operating capital to help it work through its Chapter 11 restructuring.
On Friday, July 18, the company submitted the proposed order that puts in place the debtors-in-possession (DIP) financing, which includes a $1.185 billion loan that rolls up the company's senior debt. Judge Kevin Carey signed the order on Saturday, July 19, and it was filed on Monday, July 21.
The financing agreement was revised slightly from that initially proposed to set aside some of the company's assets as unencumbered, said LandSource's attorney, Marcia Goldstein of Weil Gotschal & Manges.
"[The creditors] felt more comfortable that there would be something left for them," Goldstein said.
The company's creditors had initially objected to the financing plan. After an eight-hour hearing on Monday, July 14, Carey sent the company's creditors and debtors off with the Friday deadline for working out their differences.
LandSource, a planner and developer of master planned communities in California, Florida, Arizona, New Jersey, and Nevada, is a prime example of a company that was sold and financed as the market peaked, only to watch its value plummet within months after its sale.
When Lennar sold the majority of its interests in the company to a partnership formed by MacFarlane Partners, CalPERS, and Weyerhaeuser Real Estate in February 2007, the company was appraised at $2.6 billion. By January 2008, that value had plummeted to $1.8 billion, triggering violations of the company's loan covenants.
Lennar retains a 16% interest in LandSource, and it claims LandSource debt is non-recourse to Lennar.
After failing to reach an agreement with its lenders on how to resolve financial difficulties caused by a real estate market that continues to decline, LandSource filed for Chapter 11 bankruptcy protection in early June.
"We have assets that are declining in value; they have declined dramatically in value since the time the loan was made, and they are continuing to decline in value," said Bruce Zirinsky, who represented Barclays, the proposed lender for the debtor-in-possession financing, during a June 25 hearing on the case.