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Judge OKs bankruptcy plan

Posted: June 1, 2009 10:53 p.m.
Updated: June 2, 2009 4:55 a.m.
 
Home builder Lennar Corp. stands to buy a 15 percent stake in the Newhall Ranch project if a group of creditors signs off on a reorganization plan OK'd by a judge Monday for the project's bankrupt parent company.

During a 2 1/2-hour hearing in Delaware, U.S. Bankruptcy Court Judge Kevin J. Carey signed off on the reorganization plan for LandSource Communities Development LLC, sending the plan to creditors for a vote, then back to Carey for final confirmation later this summer.

Newhall Land and Farming Co. officials have stood by their belief the company will emerge from bankruptcy stronger, and remains likely to break ground on Newhall Ranch by 2012.

The largest project remaining on Newhall Land's plate is the development of Newhall Ranch, a Valencia-sized community of some 20,000-homes on 15,000 acres southwest of the Interstate 5/Highway 126 junction.

"There's a very defined process," Newhall Land spokeswoman Marlee Lauffer said. "We're very encouraged by the progress that's being made."

LandSource - owner of Newhall Land - filed for Chapter 11 protection on June 8, 2008. At the time, the company received debtor-in-possession financing of $1.185 billion from a group of lenders led by Barclay's Bank.

Monday's proposal would allow Lennar to buy 15 percent of the Newhall Ranch project, along with other properties, for $140 million.

Lennar sold most of its 50-percent stake at the peak of the real-estate market for $660 million, and had a 16-percent stake in Newhall Ranch before the Chapter 11 filing.

Robert Stevenson, an analyst with Fox-Pitt Kelton Cochran Caronia Waller LLC, told the Associated Press that the Newhall Ranch project is important to Lennar's strategy of maintaining a foothold in the key Southern California market, especially when the region's housing industry recovers.

How the reorganization plan will fare remains to be seen.

"I think the judge expressed significant concerns regarding the viability of the plan," said Lou Esbin, a Valencia bankruptcy attorney, who represents several companies that contracted with Newhall Land.

Indeed, the creditors are encouraged to vote against the plan in a letter dated May 29, from the law offices of Pachulski, Stang, Ziehl and Jones on behalf of the committee of unsecured creditors, and filed with the court last week.

The letter states that converting LandSource's Chapter 11 filing to a Chapter 7 case would be better for the creditors.

Under Chapter 7 of federal bankruptcy law, the court would appoint a trustee to review everything in the Chapter 11 filing and liquidate LandSource, selling assets at the best price available.

While Lennar keeps a seat at the table under the proposed reorganization plan, the plan deals a blow to the California Public Employees Retirement System, which would see its investments wiped out in the deal.

The pension fund and a group of investment partners paid $970 million for a majority stake in the venture in 2007.

"CalPERS has conducted a through review of the Lennar proposal and has determined not to participate, as this investment opportunity does not fit well with the future strategic director of our real-estate program," spokesman Clark McKinley wrote in an e-mail Monday. "Otherwise, CalPERS has a $180 billion portfolio and is a long-term investor. This deal will have no direct or immediate impact on CalPERS members."

The Associated Press contributed to this report.

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