LandSource files consensual DIP agreement resolving prior objections

By Jennifer Lanning Drey

Portland, Ore., July 18 - LandSource Communities Development LLC has reached a consensus with all objecting parties on the terms of its debtor-in-possession financing after LandSource's original DIP motion was denied by the U.S. Bankruptcy Court for the District of Delaware on July 14, according to LandSource spokesperson Tamara Taylor.

LandSource's DIP lenders have agreed to extend the interim DIP financing through July 21 to afford bankruptcy judge Kevin Carey time to review the proposed order related to the consensus, Taylor said.

As previously reported, on June 10, LandSource was granted interim access to $35 million of the proposed $1.19 billion in DIP financing from a group of lenders led by Barclays Bank.

On July 7, LandSource's official committee of unsecured creditors objected to the proposed DIP, arguing that 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."

Adequate protection

According to a proposed order filed Friday with the court, the terms of the new DIP provide adequate protection for second-lien secured parties for injury to their interests resulting from the DIP financing.

Specifically, the adequate protection would allow second-lien secured parties a super-priority claim in the event of diminution resulting from the financing.

The claim would be immediately junior to the super-priority claim granted to the first-lien secured parties and upon consummation of a roll-up, a priority immediately junior to the super-priority claim granted to the administrative agent for the revolving credit facility and term loan facility.

Second-lien secured lenders would also be allowed a lien on the collateral immediately junior to the first-lien adequate protection liens and upon consummation of a roll-up, a priority immediately junior to the priming and other liens to be granted in favor of the administrative agent for the revolver.

The terms of the new facility also offer the second-lien secured lenders additional reimbursement of DIP-related fees.

Claim satisfaction terms

Additionally, the terms state that if the collateral is not enough to satisfy the term DIP lenders and the first-lien secured parties, any unsatisfied portion of the shortfall claims, deficiency claims of the first-lien secured parties and deficiency claims of the second-lien secured parties will share in the value of the unencumbered assets with each other and with allowed pre-petition non-priority unsecured claims.

Under the agreement, 50% of any distributions made or value granted to the term loan DIP lenders and first-lien secured parties on account of the shortfall claims will be turned over for the benefit of allowed non-priority pre-petition unsecured claims against LandSource, other than the shortfall claims and the allowed non-priority pre-petition unsecured claims held by the second-lien parties.

Total distributions may not exceed the least of either the amount required to make the recovery quotient for non-lender allowed unsecured claims equal to 0.75, the amount required to make the total value of all distributions received by holders of the non-lender allowed unsecured claims $20 million, and the amount required to make the recovery quotient for non-lender allowed unsecured claims 85% of the recovery quotient for the claims of the term DIP lenders and the first-lien secured parties based solely on collateral.

Other DIP terms

LandSource's proposed DIP financing includes a $135 million senior revolving line of credit that will allow the company to fund operations during the Chapter 11 period. It also includes an up to $1.05 billion junior term loan credit facility.

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.

The DIP facility will mature on the earlier of May 31, 2009, 364 days after the bankruptcy filing date, the effective date of a confirmed plan and acceleration and termination in accordance with the DIP agreement.

Interest on the revolver will be the Eurodollar rate plus 600 basis points or alternative base rate plus 500 bps. Interest on the term loan will be Eurodollar rate plus 750 bps or alternative base rate plus 650 bps.

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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