LandSource creditors eye case conversion in light of lender actions

By Caroline Salls

Pittsburgh, June 8 - LandSource Communities Development, LLC's official committee of unsecured creditors has asked the U.S. Bankruptcy Court for the District of Delaware to convert the company's Chapter 11 bankruptcy case to Chapter 7, according to a Friday court filing.

According to the motion, the agent for the company's debtor-in-possession facility and first-lien secured lenders has been using LandSource's Chapter 11 case "as a vehicle to foreclose on the real property collateral securing the lenders' claims, wiping out unsecured debt and leaving nothing for unsecured creditors."

The committee said the lender agent has been trying to take the company's unencumbered assets since October of 2008 "through one version or another of a Chapter 11 plan." However, the committee said the plan is unconfirmable.

The committee said the agent and lenders have not made a good-faith attempt to negotiate a consensual plan that provides unsecured creditors any cash recovery or benefits from the enterprise value the agent said it is attempting to maximize under the proposed plan.

"It has become obvious that there is not a valid reorganization purpose for the debtors' Chapter 11 cases and delay is not an option," the committee said in the motion.

In addition, the committee said the company has operated at a substantial loss throughout the Chapter 11 process, and the reorganized LandSource is not expected to see a profit in the foreseeable future.

"The agent has now made it clear that it believes that the debtors' unsecured creditors should bear these losses while the lenders obtain all the benefits," the committee said in the filing.

LandSource, a Los Angeles-based developer of master-planned communities, filed for bankruptcy on June 9, 2008. It Chapter 11 case number is 08-11111.

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