Maronda Homes voters accept joint plan of reorganization; banks object

By Jim Witters

Wilmington, Del., Oct. 14 - Maronda Homes Inc. creditors voted to accept the debtors' joint plan of reorganization, according to a ballot summary filed Friday with the U.S. Bankruptcy Court for the Western District of Pennsylvania.

Fifth Third Bank and Huntington National Bank filed objections Oct. 14 to the reorganization plan and the associated disclosure statement.

A confirmation hearing is scheduled for Oct. 28.

The ballot summary shows the following:

• Class 1 secured lenders - 13 of 14 total members and 12 of the holders of claims voted to accept. Those in favor represent 85.7% in number and 88.5% in the amount of claims in this class; and

• Class 5 equity holders - All three holders voted to accept.

As previously reported, pre-bankruptcy secured lenders will be paid in full, subject to a $12 million offset amount. However, the pre-bankruptcy credit agreement payment date will be extended under the plan to Sept. 30, 2014 from March 12, 2012.

The company said in the filing that the lenders will also have the option to participate in exit financing provided that, as a condition to the debtors' acceptance of the plan, a majority in number and at least 75% in amount of the lenders must agree to participate in the exit financing.

Lenders electing to participate in the exit financing must agree that their participation in and share of the commitment will be adjusted upward to encompass the share of any lender that does not elect to participate in the exit financing.

In exchange, the share of the offset amount will be reduced to zero for each participating lender.

Huntington objections

Huntington, with Fifth Third, claims in the filing that the disclosure statement is inadequate and, as a result, the debtors' must be denied.

Specifically, Huntington says:

• The disclosure statement failed to provide adequate information. The debtors' plan proposes to pay in full all creditors, except those secured creditors who elect not to participate in additional exit financing, the objection states.

"At its heart, the crux of the plan is to impose a penalty upon each secured creditor which declines to participate in exit financing," the documents state;

• "Not a shred of information in the disclosure statement provides any support for the claims, the legal bases for the claims, the damages, the computation of the damages, the legal cause of the damages, the likelihood of succeeding with such claims or the reasonableness of the settlement of such claims;"

• The plan cannot be confirmed because it seeks to treat creditors in the same class differently. The plan places fully secured lenders into Class 1. But lenders who elect not to participate in exit financing will have a pro rata share of the $12 million offset amount deducted from their recoveries. Fifth Third also raised this objection;

• The plan has not been proposed in good faith. Fifth Third also raised this objection;

• The plan fails to include a Chapter 7 liquidation analysis; and

• The plan is not fair and equitable.

Fifth Third objections

According to the filing, Fifth Third Bank's objections also include:

• The disclosure statement lacks a sufficient description of the anticipated future of the debtors and the source of such information. "The debtors' provide virtually zero analysis of whether it is feasible that the debtors' can meet their obligations," the objection states;

• The disclosure statement fails to specifically identify the status of any executory contracts;

• The statement provides no description of the available assets and their value;

• The statement contains inadequate information about the proposed treatment of secured lenders who elect not to participate in the exit financing, including the projected rate at which collateral will be sold to pay off those lenders and a description of what would occur if Fifth Third's claim is not paid within the three-year period outlined in the plan;

• "The disclosure statement does not address any potential litigation threatened against Bank of America, as administrative agent under the revolving credit agreement, and Fifth Third Bank, as a principal," the documents state;

• The proposed plan "... provides Class 1 secured lenders with a Hobson's choice of choosing one of two bad deals dependent on whether the secured lender elects to participate in a proposed exit facility."

• The plan contains "improper and overly broad" third-party releases;

• The plan is not feasible. Projections included in a report done for the secured creditors shows that from October 2010 to December 2011 the company will post a total loss of $14.4 million. The report also states that for 2012 the company will lose $8.3 million. "Clearly, these numbers do not support an allegation that the joint plan is feasible," the objection states;

• Fifth Third is not receiving more than it would under a Chapter 7 liquidation; and

• The $12 million fee being paid to the secured lenders participating in the exit facility is not reasonable.

Maronda, a homebuilder based in Clinton, Pa., filed for bankruptcy on April 18. The Chapter 11 case number is 11-22418.

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