Barclays Bank, representing the lead creditors of LandSource, filed a plan in bankruptcy court on Monday Oct. 13 calling for liquidation of the giant land development company by auctioning off all its assets within 120 days of the court's approval and distributing the proceeds among creditors.

The move seems an abrupt about-face for Barclays, which, shortly after LandSource filed for Chapter 11 bankruptcy court protection in June, agreed to provide the California-based company with debtor in possession financing to keep its doors open and employees paid for a year during the reorganization.

The Monday filing came at the end of a 120-day period when LandSource had the right to propose a reorganization plan without facing opposing plans from creditors. With no plan on the table for reorganizing the company, "The Administrative Agent has filed the Plan in order to advance the Chapter 22 cases towards a timely and successful resolution," documents filed by Barclays said.

Larry Webb, former CEO of John Laing Homes, who, along with Timothy Hogan, formerly of Warmington Homes, was appointed by the bankruptcy court to serve as restructuring officers, said the move by Barclays has changed little at this point, and that the debtors still have the right to file their own plan for reorganization with the court.

"I know that there are members of the ownership group that are committed to working things out with the creditors," Webb said. "I am going to be meeting with the steering committee of the creditors next week...I'm still kind of hopeful that the owners will come up with a plan that will be accepted by the creditors."

Webb said it shouldn't be surprising that LandSource couldn't come up with a plan and get buy-in from creditors in 120 days. "One-hundred-twenty days is not a long time to get your arms around 35,000 lots in today's world to figure out a value," he said "I don't believe anyone believes there is going to be this fast turn around."

A hearing on Barclay's plan is scheduled for Nov. 5, and there is an Oct. 29 deadline for filing objections.

The 120 days since bankruptcy filing also triggered a promotion for Webb and Hogan. They replaced the executive committee that had been running LandSource. The veteran home builder pair was hired as non-interested parties who are independent of the current debtor's managers from Lennar Homes and LNR Property Corp. and from the creditors "to enable them to provide unbiased insights with respect to the various restructuring options for the debtors," the bankruptcy court documents said.

"Tim and I, from the day we got here, our overriding goal is to help both sides get something that works," Webb said. "From our perspective, we were trying to help both groups [creditors and debtors.] We really have no ulterior motives, no baggage. We really just want to help people."

In the meantime, Webb said, the employees at LandSource, whose primary asset is 23,000 lots in the Santa Clarita Valley north of Los Angeles that were part of Valencia and Newhall Farming, are still working to move projects along. "It is clear to me that those people are still working hard to get their entitlements and do what they always do. They really are moving forward."

Also, the debtor-in-possession financing remains in place, providing operating capital through May or June of next year, Webb said.

In the long run, LandSource's assets have great value, Webb said. "When you take everything aside, the poor economy and the poor housing market, Valencia and Newhall in particular are always going to be long-term great assets. When you are dealing with a big master plan, they have created a lot of value from what they have already done."

But there was a time not so long ago when LandSource, which has land in Florida, Arizona, New Jersey, and Nevada, was considered much more of a short-term money maker.

When Lennar and LNR Property sold the majority of their interest in the company to a partnership formed by MacFarlane Partners, CalPERS, and Weyerhaeuser Real Estate in February 2007, it 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 and LNR each retained a 16% interest in LandSource after the sale.

Its value is likely to have fallen farther since, a supposition that could be verified in the next few months as the company tries to pin down a value in the course of the bankruptcy court proceedings.

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