BY DAVID P. WILLIS AND MICHAEL L. DIAMOND
TRENTON — A bankruptcy court judge today gave permission to Kara Homes to move forward with the sale and closing of nine homes.
Kara had hoped to get permission to restart construction of up to 300 homes, but a lawyer for the troubled home builder said the short-term financing to get the company started again had fallen through.
Full Story...We have a running commentary going in the comments section with lots of important insight about Chapter 11 bankruptcies provided by SCProfessor. I've bumped this recent post by SCProf from the comments section to the main board because it is pretty interesting and deserves to be read.
"As I'll discuss, the salient points of this article are contained at the end (I've quoted it below). What you are seeing is a common sense approach by the attorney for the unsecured creditors committee. He is smart enough to know that if unsecured creditors are to get anything, time is an adverse factor and you need to sell, sell, and sell before secured creditor claims exceed the value of the collateral (something they likely do with regard to many of the estate assets). Always smart to fight over money than depreciating assets (and with the real estate bubble, KARA's real property holdings clearly fit within the definition of "depreciating").
The idea of a CRO (chief reconstruction officer) is one that I expect Zudi to oppose. As to whether or not he is successful is largely dependent upon whether the "white knight" lender rides off into the sunset. My guess is financing is a dead issue because there were simply no unencumbered assets with which to secure repayment of the new loan. Obviously, given the condition of this debtor with no real assets other than some sort of an ownership interest in affiliates, it certainly wouldn't make sense in the exercise of prudent lending practices to base repayment chances simply on a loan's status as a chapter 11 administrative claim. Clearly once the case is converted, well Chapter 7 administrative claims and secured claims are going to likely gobble up all the assets. Remember all those lenders have promissory notes that contain attorney fee provisions and you can be sure the costs associated with those "more than two dozen lawyers" are going to have to be figured into any sort of solution.
I'm guessing we are only a couple weeks away from a complete meltdown, with construction lenders, mechanics lien claimants, and others piling on with motions for relief from the automatic stay so they can complete their foreclosures. Interesting times, that's for certain.
Take care,
SCProfessor
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A lawyer for the committee of unsecured creditors said he supported the sale of the homes.
"I hope this becomes the platform -- reduce real estate and homes to cash -- and we can debate who gets it later,'' said lawyer Michael D. Sirota of Hackensack..
More than two dozen lawyers representing banks, subcontractors and insurance companies, packed Kaplan's court room for the hearing. Among the other topics they discussed was the appointment of a chief reconstruction officer who would run the daily operations of the company.