LandSource creditors committee objects to lenders' DIP financing demands, calls for liquidation

By Caroline Salls

Pittsburgh, July 7 - LandSource Communities Development LLC's official committee of unsecured creditors objected to the company's proposed debtor-in-possession financing, arguing that the adequate protection package the lenders are demanding "is designed to give the first-lien lenders a dominating position over the committee concerning the inevitable liquidation to follow."

According to the objection filed Monday with the U.S. Bankruptcy Court for the District of Delaware, the company's first-lien lenders "and the essentially identical syndicate of lenders providing the DIP financing," are the primary and possibly only beneficiaries of the financing.

"The lenders nonetheless demand a dizzying package of benefits for the first-lien lenders as purported adequate protection for the alleged injury to their interests resulting from the DIP financing," the committee said in the objection.

In addition, the committee said the DIP facility is designed to insure that the first-lien lenders receive the entire recovery from the company's existing unencumbered assets, which could easily exceed $100 million in value.

The committee said LandSource's bankruptcy case is destined to result in liquidation, although the company will not admit it plans to liquidate.

As a result, the committee said it would be in the best interest of unsecured creditors for the company's estates to be liquidated now, "as opposed to having the DIP financing approved under the terms demanded by the first-lien lenders."

As previously reported, LandSource has received commitments for $1.19 billion in DIP financing from a group of lenders led by Barclays Bank. The financing includes a $135 million revolving line of credit that will allow the company to fund operations during the Chapter 11 period.

The facility also includes a $35 million letter-of-credit subfacility and a $10 million swingline facility and a junior secured term loan comprising the roll-up of up to $1.05 billion of pre-bankruptcy obligations.

A hearing on the DIP financing is scheduled for July 14.

LandSource, a Los Angeles-based developer of master-planned communities, filed for bankruptcy on June 9. It Chapter 11 case number is 08-11111.

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