LandSource Communities' creditors and debtors reached a compromise Friday, July 18, that should allow the company to refinance its debt and provide operating capital while it restructures in bankruptcy.
A proposed order that would put in place the $1.185 billion loan was sent to U.S. Bankruptcy Court Judge Kevin Carey with the hope he will sign it on Monday. The debtors-in-possession (DIP) lenders agreed to extend the company's interim financing until then, said Tamara Taylor, LandSource's spokesperson.
The proposed finance agreement is essentially the same as that initially proposed, said LandSource's attorney Marcia Goldstein of Weil Gotschal & Manges. The original amount, interest rates, and borrowing conditions remain, she said. However, the revised loan will leave some of the company's assets unencumbered by the loan and theoretically available for unsecured creditors.
"[The creditors] felt more comfortable that there would be something left for them," Goldstein said.
After an eight-hour hearing on Monday, July 14, Judge Carey sent the company's creditors and debtors off with the deadline of reaching an agreement on the financing terms by Friday, July 18.
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 and LNR sold the majority of their 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.
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.