A bankruptcy court judge on Monday, June 1, approved the statement disclosing the proposed terms for the reorganization of LandSource that will be sent out to the company’s creditors for vote, but the plan is far from being approved.

Creditors opposed to the plan will be arguing against it at what could be five days of hearings starting July 13, and the disclosure statement will be sent out to voters with letters attached from the creditors' groups urging that they vote against it.

The unsecured creditors have argued that liquidating the land development company and selling off its assets piecemeal rather than reorganizing as proposed would provide them with more cash than the current reorganization plan would. LandSource has argued that its chief asset, thousands of acres in the Santa Clarita Valley 30 miles north of Los Angeles, has a great deal of value if kept intact.

The proposed reorganization plan is supported by the biggest creditor, a consortium of investors put together by Barclays, which is owed about $1 billion. The consortium financed the purchase of the majority of LandSource from Lennar and LNR more than two years ago by the California Public Employees Retirement System (CalPERS), MacFarlane Partners, and Weyerhaeuser Real Estate.

Under the current plan, the Barclays consortium would own 85% of the company that emerges from Chapter 11 bankruptcy court protection. Another 15% 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. There's also additional specific amounts of money set aside to be given to the smaller 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 as well as cover 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, would operate the new company.

Among other reasons, the company's official committee of unsecured creditors objects to the plan because it rolls some unsecured assets, including a water company and the rights to receive the proceeds of some legal claims, into the new company. An alternative would be saving those assets to be divided among some of the larger unsecured creditors, which is the approach that was originally proposed shortly after the bankruptcy was filed in June 2008.

Without those assets, the unsecured creditors would be better served if the company is liquidated, they have said. The group also disputes the LandSource's valuation of itself.

Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.

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