Meruelo Maddux Properties creditors file competing reorganization plan

By Caroline Salls

Pittsburgh, Aug. 9 - Meruelo Maddux Properties, Inc. creditors Legendary Investors Group No. 1, LLC and East West Bank filed a competing plan of reorganization for the company's bankruptcy case Friday with the U.S. Bankruptcy Court for the Central District of California.

Legendary and East West Bank said their proposed plan ensures more value for stakeholders than under the company's plan "under which creditors are locked into a structure with a great deal more risk and contingencies to their recovery."

Creditor plan terms

Specifically, under the creditors' plan:

• A total of $65 million of secured debt would be converted into equity. The plan also includes a $5 million infusion of new cash and a $10 million rights offering to holders of existing common stock;

• In exchange for converting $65 million of their debt and Legendary's $5 million equity contribution, the plan proponents will receive between 308.4 million and 352.4 million shares of reorganized Meruelo Maddux, equal to a stake of between 70% and 80%, depending on the outcome of the rights offering;

• Priority and unsecured creditors would be paid in full;

• Secured creditors who have agreed to settlements would be treated in accordance with those settlements;

• Secured creditors who have not settled would "receive terms that exceed those which are proposed in the debtors' plan." Specifically, these creditors would be paid quarterly over four years at a 5% interest rate, with a balloon payment due at maturity; and

• Existing equity holders would receive 20% of the equity in the reorganized company and have the right to purchase an additional 44 million shares at a price of $0.227 per share, representing an additional 10% of the new common stock.

Company plan treatment

As previously reported, under Meruelo Maddux's plan:

• Holders of administrative claims and other priority claims will be paid in full in cash;

• Holders of common lender secured claims will be paid in full in cash over a period of five years if they vote to accept the plan or over a period of seven years if they vote to reject it;

• Holders of unsecured convenience claims of $500 or less will be paid in full in cash on the plan effective date;

• Holders of general unsecured claims will be paid in full over five years with 1% interest; and

• Interest holders can receive either $0.08 per share or contribute cash and shares in exchange for new equity.

Shareholder plan

In addition, Meruelo Maddux shareholders Charlestown Capital Advisors, LLC and Heartland Asset Management Corp. filed a competing plan in July.

Creditor treatment under the shareholder plan will include:

• Holders of secured lender claims will receive deferred cash payments over a five-year period;

• Holders of unsecured claims will be paid in full in cash;

• Holders of settling unsecured guaranty claims will be paid in accordance with their settlements;

• Holders of non-settling unsecured guaranty claims will be paid in cash in five years with 3% interest;

• Holders of Meruelo Maddux insider interests will receive $16.00 per 100 shares of stock;

• Holders of non-insider Meruelo Maddux interests will receive either $16.00 per 100 shares or a combination of $10.00 plus one share for each 100 shares; and

• Holders of interests in the subsidiary debtors will retain their interests.

The disclosure statement hearing is scheduled for Sept. 8.

Meruelo Maddux, a self-managed, full-service real estate company that develops, redevelops and owns commercial and multi-family residential properties, filed for bankruptcy on March 26, 2009. Its Chapter 11 case number is 09-13356.

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