TOUSA has proposed a reorganization plan that would take it out of bankruptcy by early next year, nearly $2 billion lighter in debt and reorganized under a new corporate entity controlled by unidentified "financial players on Wall Street" who invest in distressed entities, the company's CEO John R. Boken said Tuesday.

"The plan still has a long way to go through the bankruptcy approval process," Boken said. "But the plan is essentially a stand-alone plan; we really are not dependent on external financing or external capital infusion or anything."

Under the plan, TOUSA would hand over stock and control of the reorganized company to the holders of $300 million in second lien debt, effectively wiping it out. Boken said he was "not at liberty" to give the names of these entities. "These are people who invest in distressed entities...Over time, their names will become public." When asked whether MatlinPatterson, the private equity firm that gained ownership of Standard Pacific Homes through buying its debt, is one of the second lien holders, Boken simply said: "Companies like that."

In addition to eliminating the $300 in second lien debt, another $1 billion in unsecured bond debt and $600 million in other debt would be eliminated under the proposed plan in return for giving the debtholders an interest in a "litigation trust," which may or may not have value depending on the findings of a lawsuit against the company filed by shareholders.

Stockholders in the existing TOUSA would receive nothing.

The plan is scheduled to be voted on by creditors and approved between now and January. If approved, the company could emerge from bankruptcy by late January or perhaps early February, about a year after the company filed for Chapter 11 bankruptcy protection.

If the plan is approved, the new TOUSA would have roughly $360 million in secured debt remaining and between $125 million and $145 million in cash to operate.

"We are substantially deleveraged," Boken said. "We weren't generating the volume to support the debt structure that we had. We believe this revised debt structure is something we can support." And the cash should be enough to keep the company operating until 2010 or 2011 when the market might turn around.

Boken said the company does not yet have the support of all its creditors for the plan. "We are in discussions with first line holders and the creditors committee," said Boken. "We hope to ultimately have everyone."

Even if the plan is approved, just who will own how much of the new TOUSA won't be clear until the resolution of a lawsuit filed by the creditor's committee alleging that the company didn't get fair value when it took on debt to take over its faltering Transeastern joint venture in July 2007 before the company filed for bankruptcy protection in January 2008. The creditors questioned that the assets the company received in the exchange weren't worth what they borrowed to pay for them.

The result of that lawsuit could affect how much of the new company the second lien holders receive versus how much the unsecured bond holders receive, Boken said.

Despite that uncertainty, it is clear that the second lien holders would be running the company if the plan is approved. "The seconds [ second lien holders] will be in control of the governance of the enterprise based on this plan even if they don't have complete control of the equity," Boken said. "They will appoint a new board, and determine a management team. We propose that they keep the management team intact."

Despite the loose end created by the pending litigation, Boken said it is better for the company to get itself out of bankruptcy court as soon as possible.

"I think what everyone concluded is that we are better off outside of bankruptcy," Boken said. "We prefer to have the litigation settled or resolved, but if it's going to take another six to nine months to get it resolved, we don't think it benefits us...Let's shed ourselves of the burden of bankruptcy, from both the cost and stigma."