The plan to reorganize LandSource Communities and pull it out of bankruptcy has been amended once again, this time to sweeten the pot and make more cash available for balking creditors.

Delaware Bankruptcy Court judge J. Kevin Carey has delayed a final hearing on the plan by a week to July 20 and allowed a shortened period of time for creditors to vote on the newest changes. The company is facing a July 31 deadline to reorganize the company. That's when its debtor in possession financing, which provides the cash to keep the doors open during reorganization, expires.

The plan changes involve LNR Property Corp. and Lennar, the two companies that sold most of their interests in LandSource in 2007 to MW Housing Partners, a company composed of the California Public Employees Retirement System, MacFarlane Partners, and Weyerhaeuser Real Estate.

As part of the changes, LNR has agreed to contribute $13 million in exchange for 1% equity interest in the reorganized LandSource. That cash would increase the amount available to be divided between second lien creditors and unsecured creditors in the case.

The proposed agreement calls for the second lien creditors to receive their pro-rata shares of $9.5 million in cash while the unsecured creditors would divide $10 million. Neither set of creditors would receive any shares in the reorganized company.

Also, there are provisions that would defuse other potential future litigation between LandSource and LNR and Lennar related to the sale of LandSource in early 2007. In less than a year after that sale, the appraised value of the assets diminished from $2.6 billion to $1.8 billion.

Under the proposed agreement, LandSource agrees not to sue Lennar and LNR for that sale, which netted each $660 million, and in return, Lennar and LNR agree not to sue LandSource for damages related to not paying agreed-upon management fees, and for not delivering on purchase and sale and option agreements made as part of the sale.

Without detailing the plan, Debra Dandeneau, a partner at Weil, Gotshal & Manges, the firm representing LandSource in the case, said the plan revisions have the support of the company's secured second lien holders as well as the unsecured creditors' committee. In the past, they were calling for the company to be liquidated, saying they stood to gain more that way than through the earlier reorganization plan.

"The parties have worked really hard to achieve a consensus," she said. "We will be delighted to emerge as a healthy reorganized company."

The gist of the rest of the reorganization plan, which would pull LandSource out of bankruptcy debt free if approved, remains essentially the same.

The company's biggest secured creditors, a consortium of investors managed by Barclays that is owed roughly $1 billion, would end up with 85% of the new company formed after bankruptcy. A consortium of investors formed by Barclays financed the loan that MW Partners used to purchase LandSource from Lennar and LNR. 

Lennar, which now owns 16% of LandSource, would pay $140 million for 15% of the new entity, title to some of the company's land assets, and release from some potential legal claims.

In order to raise another $140 million to keep the company going, there would be a rights offering. The plan allows not only the senior secured creditors to buy those rights but also other major creditors, as well.

The plan also now specifically says which investors have agreed to pony up whatever portion of the $140 million isn't raised in the rights offering: Anchorage Advisors, Marathon Asset Management, Affiliate Investment Funds of OZ Management, Third Avenue Real Estate Value Fund, Third Avenue Special Situations Fund (Master), TPG Credit Management, or any one they permit to invest.

The $280 million total raised from Lennar and the rights offering would pay off the loan made by Barclays to keep the company operating in bankruptcy, professional fees in the case, property taxes, and liens, as well as give the reorganized company, called Holdco, working capital of about $122.5 million.

If the plan is approved, after everything is said and done, LandSource would, essentially, end up back under the same manager it had with Lennar.

The plan calls for Lennar's Emile Haddad, chief architect of the original LandSource company, to resign from Lennar and start a new land management company that would manage LandSource and other land assets.

Haddad would put $1 million of his own money into the company as a requirement. He'll receive some ownership in the new company in return. The management company itself will have 2.5% interest in the new company and receive a $5 million annual fee.

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