Neumann Homes asks court to solve 'structural problems' by allowing establishment of debtor subsidiary

By Jennifer Lanning Drey

Portland, Ore., Feb. 19 - Neumann Homes, Inc. requested court permission to create a new debtor subsidiary and transfer assets related to a development in Antioch, Ill., to the new subsidiary. The company also asked for court approval of the bidding procedures related to the sale of the Antioch assets.

The requests were submitted in separate filings made Monday with the U.S. Bankruptcy Court for the Northern District of Illinois.

The company said approval to create the new debtor subsidiary would solve the structural problems that have previously prevented Neumann from obtaining commitments for additional post-bankruptcy financing.

Specifically, the approval would allow Neumann and the new subsidiary to obtain supplemental debtor-in-possession financing from Cole Taylor Bank, which provided the pre-bankruptcy financing for the Antioch development. It is also a condition of the Cole Taylor financing, according to the motion.

Neumann wants to create a new debtor subsidiary, cause it to file a Chapter 11 case to be jointly administered with its own, and transfer the Antioch development into the new company in order to have a separate debtor estate that could complete the sale process for the development with financing provided by Cole Taylor, even if other subsidiaries were unable to obtain the additional financing necessary to continue their Chapter 11 cases, the company said.

Any equity value realized from the sale of the Antioch development would remain property of Neumann Homes, Inc. by virtue of its full ownership in interest in the new company.

According to the motion, Cole Taylor is willing to provide $300,000 of additional funding to Neumann to be used for general operating expenses and to advance such additional amounts that may be needed to preserve the value of their collateral. In addition, Neumann would realize additional cash consideration from the outcome of a sales process for the Antioch development even if Cole Taylor's debt is not repaid in full, the company said in the motion.

However, before committing to such funding, Cole Taylor needs reasonable assurance that Neumann will otherwise have sufficient liquidity to complete a sale, Neumann said.

"The issue that Cole Taylor has raised is essentially the same one that has plagued [Neumann] from outset of these cases and stems from the fact that the bulk of the debtors' assets are housed in the estate of Neumann Homes, Inc.," the company said in the motion.

Therefore, unless Neumann's eight senior lenders provide some funding, there is a risk that the company may not have sufficient liquidity to operate in Chapter 11, the company said.

A hearing has been scheduled for Feb. 27.

Antioch bidding procedures

In connection with the filing, Neumann filed a second motion requesting that the court establish bidding and auction procedures in connection with the sale of the Antioch development.

Under the bidding procedures, bids must be accompanied with a 5% good faith deposit and further assurances of financial ability to close.

Additionally, prior to the auction date, Neumann may offer a break-up fee or termination fee of up to 3% of the purchase price offered by a bidder. If such a fee is offered, that bidder will be considered the stalking horse bidder.

If multiple qualified bids are submitted, an auction may be held on May 7. Neumann has proposed that a sale hearing be held on May 14.

Approval of the bid procedures will also be considered at a Feb. 27 hearing.

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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