Neumann Homes secured trade creditors object to $2.5 million DIP facility

By Jennifer Lanning Drey

Portland, Ore., Nov. 21 - Neumann Homes, Inc.'s ad hoc committee of secured trade creditors objected to the company's motion for approval of $2.5 million of debtor-in-possession financing, according to a Wednesday filing with the U.S. Bankruptcy Court for the Northern District of Illinois.

In the filing, the creditors argued that it would be premature for the court to authorize the financing prior to the company making available the pre-bankruptcy lenders' loan and security documents. The committee said it intends to file a separate motion seeking the documents.

Additionally, the creditors argued that the DIP term sheet ignores the fact that members of the ad hoc group have a first lien and second lien on real estate to the extent of their improvement of the value of the secured property.

The committee further said the motion needs to be clarified to expressly state that the pre-bankruptcy DIP liens and replacement liens will be junior in priority to the pre- and post-petition mechanics' and materialmens' liens.

"The motion is premised on the erroneous assumption that the prepetition lenders' security interest in [Neumann's] assets are senior in priority to the liens and interests of the member of the ad hoc group, which is simply untrue," the committee said in the motion.

Neumann requested court approval of the $2.5 million financing on Nov. 13.

As previously reported, Guaranty Bank is the DIP agent, and Cole Taylor Bank, IndyMac Bank, FSB, RBC Builder Finance and Residential Funding Co., LLC are the other DIP lenders.

Interest will be Libor plus 300 basis points.

The DIP facility will mature in six months.

The proceeds will be used to fund the wind down of the company's operations, including paying a small group of employees, hiring restructuring and marketing professionals, financing a marketing process and launching the disposition of its assets.

A hearing has been scheduled for Nov. 28.

Neumann Homes, a Warrenville, Ill.-based homebuilder, filed for bankruptcy on Nov. 1. Its Chapter 11 case number is 07-20412.

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