LandSource Communities has won a two-month extension on its debtor-in-possession financing, allowing the company access to the cash it needs to operate through the end of July.
Without the May 22 approval of Judge Kevin Carey, chief judge for the bankruptcy court’s Delaware division, the California-based land development company would have lost its source of operating cash May 31.
The extension will come at a cost of a 2% higher interest rate and a $1.35 million fee. But, otherwise, the company might find itself moved from a Chapter 11 restructuring status to Chapter 7 liquidation, requiring the company to be sold off in pieces with the proceeds going to its creditors.
The company’s current operators say LandSource, with its best and primary asset being thousands of acres 30 miles north of Los Angeles in the Santa Clarita Valley, is worth more as a going concern than it would be split into pieces and sold at fire sale prices. But some of the company’s creditors have suggested in their filed objections that, under the current proposals, they might get more if the company is liquidated.
The current reorganization plan calls for the company to re-emerge from bankruptcy debt free with 85% of the new holding company owned by some of the primary creditors in a consortium formed by Barclays. Another 15% of the company would be owned by Lennar or one of its agents, which would spend $140 million for that portion of the company. Lennar now owns 16% of the existing company.
Another $140 million is proposed to be raised through a rights offering that, under the latest plan, allows not only the senior secured creditors from Barclays to buy those rights, but other major creditors to re-invest as well. The company’s second-lien holders as well as its unsecured creditors would also be allowed to invest in the new LandSource entity. And there’s some more specific amounts of money set aside to be given to unsecured creditors.
The $280 million raised from Lennar and the rights offering would pay off the loan made by Barclays to keep the company operating in bankruptcy, pay for professional fees in the case, property taxes, and liens, and give the reorganized company, called Holdco, working capital of about $122.5 million to start afresh.
A management firm run by Emile Haddad, Lennar’s original engineer and compiler of the LandSource assets for the home builder, which once owned half the assets of LandSource, would operate the new company. Haddad would leave Lennar’s employ and would be required to put $1 million of his own cash into the new operation, but would also be given some ownership in the new company as well.
The company’s official committee of unsecured creditors has vociferously objected to all of LandSource’s reorganization plans, saying they are not detailed enough and questioning some of its financial data. The unsecured creditors have contended that it’s not entirely clear what, if anything, they will get toward what they are owed by the company. Early in the bankruptcy process, they said they were promised a share of the company’s unencumbered assets. Under the proposed plans, those unencumbered assets would be folded into the new company instead.
The latest version of a plan for reorganization was filed May 19; the eve before a hearing on the plan was scheduled, prompting the unsecured creditors to ask the judge to grant the unsecured creditors’ committee a “short” extension to look at the newest plan.
The topic is scheduled to come up again June 1, just a week shy of the first anniversary of the initial bankruptcy filing on June 8, 2008.
At the end of 2008, LandSource owned more than 50 communities with more than 34,000 homesites, 800 acres of commercial land, and 4 million square feet of commercial redevelopment.
The proposed business plan for the reorganized LandSource would focus on preserving and securing entitlements on the company’s best asset, Newhall Ranch and Valencia, huge developments in the Santa Clarita Valley. The company owns 31,000 acres of entitled and untitled land there.
Most of the remaining company’s assets, roughly 3,928 lots scattered, will be mothballed and sold when possible. The company already has made a deal to sell much of its land in the ailing Inland Empire area of Riverside, Calif. Other deals in Nevada are said to be pending as well.

Teresa Burney is a senior editor with Builder and Big Builder magazines.

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