South Edge builders, trustee, lender, Focus South reach settlement

By Jim Witters

Wilmington, Del., Oct. 6 - Nearly all remaining parties involved in South Edge, LLC have agreed to a global settlement that removes nearly all obstacles to confirmation of a reorganization plan, according to documents filed Thursday in the U.S. Bankruptcy Court for the District of Nevada.

The parties continue to negotiate the final agreement that will incorporate the settlement. No hearing date has been scheduled regarding the settlement, though the plan confirmation hearing is scheduled for Oct. 17.

The settlement severs ties between South Edge and Focus South Group, LLC.

Cynthia Nelson, the Chapter 11 trustee, wrote in the filing that the South Edge project - a joint venture among several builders to erect a development on 2,000 acres in Henderson, Nev. - was embroiled in "contentious disputes and litigation by and among its primary constituents." Those disputes led to the involuntary bankruptcy petition and the appointing of a trustee.

The global settlement offered on Oct. 6 resolves all but one of the outstanding issues and clears the path for plan confirmation, Nelson wrote in the filing.

The only remaining unresolved issue concerns Meritage Homes of Nevada, a builder member that has made clear its intention to oppose the confirmation of the plan, Nelson wrote in her filing.

Settlement terms

The settlement in principle filed by the Chapter 11 trustee calls for the following:

• The Focus adversary proceeding to be resolved by a final judgment that provides that $21 million of the disputed cash deposits is the property of the estate and the balance $5 million is property of Focus;

• The settling builders - KB Home, Toll Brothers, Inc., Weyerhaeuser Real Estate Co. and Beazer Homes Holdings Corp. - to pay the Focus parties $35.5 million. The debtor will pay Focus $5 million;

• The settling builders to obtain all rights, titles and interests of Focus in a $36.8 million judgment Focus won in a civil case, in all claims Focus holds against the debtor and in any intellectual property rights relating to the debtor or the project;

• Focus parties to be deemed to have resigned from any position held with the debtor and shall have no management or voting rights;

• Focus to support confirmation of the plan; and

• Focus to cooperate with the settling builders and the acquirer in connection with future development of the project.

"The only alternative to the settlement is litigation," Nelson wrote in the filing. "Although the trustee believes that her prospects of successfully litigating with the Focus parties would be good, creditors that hold the overwhelming majority of claims against the estate have advised her that they would prefer settlement and a quick exit from bankruptcy over the increased risk and expense of litigation with the Focus parties."

South Edge is a joint venture between KB Home wholly owned subsidiary KB Home Nevada Inc. and a third-party property management firm.

An involuntary bankruptcy case was filed against South Edge on Dec. 9, 2010. The Chapter 11 case number is 10-32968.

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