A U.S. Bankruptcy Court judge in Delaware has given LandSource Communities Development's creditors and debtors until Friday, July 18, to come up with a mutually agreeable plan to refinance the company's debt.

The judge issued the deadline after an eight-hour hearing on Monday, July 14, related to a proposed $1.185 billion debtor-in-possession (DIP) loan that would refinance the company's debt and provide it with operating capital while it restructures in bankruptcy.

Creditors have objected to the plan proposed by LandSource. In court documents, some have argued that the terms are too odious and questioned whether the company shopped around for other financing.

LandSource, a planner and developer of master planned communities in California, Florida, Arizona, New Jersey, and Nevada, filed for Chapter 11 bankruptcy protection in early June after failing to reach an agreement with its lenders on how to resolve its financial difficulties caused by the failing real estate market.

When Lennar and LNR sold the majority of their interest in LandSource to a partnership formed by MacFarlane Partners, CalPERS, and Weyerhaeuser Real Estate in February 2007, the company was appraised at $2.6 billion. By December, that value had plummeted to $1.8 billion, triggering violations of the company's loan covenants.

The company's value is likely to be even less today.

"We have assets that are declining in value," said Bruce Zirinsky, who represented Barclays, the proposed debtor in possession, during a June 25 hearing on the case. "They have declined dramatically in value since the time the loan was made, and they are continuing to decline in value."

"LandSource continues to believe that the proposed DIP financing is better for all the company's constituents, including our trade creditors, than the alternatives they would have to pursue if the company has no liquidity to fund their ongoing operations," said Tamara Taylor, LandSource's spokesperson. "LandSource will continue to work with all constituents to attempt to bridge the gap in views."

The financing is non-recourse to Lennar and LNR, which each retained a 16% interest in the venture.