Tuesday, November 18, 2008

Owners' lawyers want more time to nail down details on final bids

By TIM MORAN
tmoran@modbee.com

last updated: August 20, 2008 05:13:47 AM

SACRAMENTO -- Homeowners, golf club members, creditors and bond holders will have to wait another week to learn the fate of Diablo Grande resort in western Stanislaus County.

Attorneys for the partnership that owns the 28,500-acre golf and housing development were to give the name of the best bidder for the property in U.S. Bankruptcy Court on Tuesday. But Judge Robert S. Bardwil granted a continuance to Aug. 28 after attorney Michael Ahrens said the partnership needed more time to work out the details of the bid offers.

The owners of Diablo Grande are trying to sell the resort through an auction process to resolve the Chapter 11 reorganization bankruptcy. Ahrens told the court Tuesday that the partnership had received four bids from potential buyers who had "more than sufficient" means to close the deal.

The owners narrowed the bids to two and asked those bidders for their best final offer, Ahrens said. But details of the offers were not nailed down in time for Tuesday's court hearing, he said.

"We are trying to clarify and get more consideration for the estate," Ahrens said.

Bardwil agreed to the continuance, but warned the attorneys that he had problems with the settlement agreement, which describes how the money from the sale would be divided among the various categories of creditors.

The settlement agreement between the Diablo Grande partnership and the major secured creditors appears to be a "de facto reorganization plan," Bardwil said, which bypasses protections for creditors built into the bankruptcy laws. A number of creditors are insiders, the judge said -- companies or entities affiliated with the ownership group.

The court may not have the authority to approve the settlement agreement because it bypasses bankruptcy code, Bardwil said. "I would not approve it in its current configuration," he said.

Bardwil also noted objections to the sale filed by the Diablo Grande Homeowners Association and the West Stanislaus Fire District.

Ahrens said he was trying to meet with the homeowners association and with the fire district, and felt the judge's concerns could be worked out before the Aug. 28 hearing.

The partnership that owns the resort development in the hills west of Patterson filed for Chapter 11 reorganization bankruptcy in March after the housing slump caused financial problems. The development, which includes two championship-level golf courses and about 400 homes, has been operating since then with interim loans.

The development has enough money left to meet payroll through next week, Ahrens said.

Envisioned 15 years ago as a luxury golf resort with thousands of homes, a hotel and convention center, retail shops and a spa built around the two golf courses, the development was brought to a virtual halt last winter with the slump in housing sales.

It has been listed for sale for more than a year, first at $150 million, then $85 million, and, eventually, at auction with a minimum bid of $26 million.

The bankruptcy listed more than $54 million in debts, but some of the creditors listed were companies affiliated with the partners. The largest outside creditor is the Bank of Scotland, owed $20.6 million.

Stanislaus County is owed about $4 million in taxes and assessments, and the company that runs the water plant is owed $4.5 million, according to court documents.

The new owner of Diablo Grande will have to build the West Stanislaus Fire District a $3.5 million fire station when the 500th building permit is issued.

The managing partner, Don Panoz, is a pharmaceutical and auto racing entrepreneur, who has developed similar resorts in Georgia and Scotland.

Bee staff writer Tim Moran can be reached at tmoran@modbee.com or 578-2349.

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