The partnership that owns the Diablo Grande resort and golf club in western Stanislaus County filed a Chapter 11 reorganization bankruptcy Monday afternoon, listing $50 million to $100 million in assets and a similar amount of debt.
The Chapter 11 filing allows the resort to continue operating while it restructures its debts. The 33,000-acre property in the hills west of Patterson has been struggling with financial problems since the housing market turned sour.
The two golf courses at the resort were closed in December and January, and reopened last weekend. The partnership is in default on a $900,000 bank loan and owes about $3 million to the company that delivers water to the site. Several mechanics liens have been filed in recent months.
Diablo Grande has been for sale for more than a year and is listed with Marcus & Millichap, a Southern California firm that specializes in selling real estate developments. Real estate agents for that company told The Bee last month that three offers had been received but that none met the $150 million asking price.
The bankruptcy filing was signed by Donald Panoz, president of Diablo Grande Inc., general partner of Diablo Grande Limited Partnership, which owns the resort.
Dwain Sanders, vice president of development for Diablo Grande, declined to comment Monday, saying officials were busy with the legal details of the filing.
In a Jan. 31 story in The Bee, Sanders blamed the downturn in the housing market for the resort's financial troubles. "We are feeling the effect of the housing market, just like everyone else," Sanders said at the time.
The resort plans call for 2,300 homes, along with a resort hotel, convention center and retail development. About 400 homes have been built, and permits have been issued for 70 more. While sales of smaller tract homes are active, the large custom estate home sales are reportedly dormant.
The bankruptcy filing was incomplete and didn't list individ-ual creditors. Attorneys for the resort have until March 25 to complete the filing.
Veolia Water North America, which runs the community's water treatment plant, is owed about $3 million, according to Charles Voltz, president of Veolia's western division.
The Chapter 11 filing was not a surprise, Voltz said Monday.
"They've been talking about that for a couple of weeks now," Voltz said. "We had a draft copy. They made us well aware of it. We've been working with them."
Voltz said the filing won't cause changes in the operation of the water plant. "We are still there and operating the facility. We are in discussions with them," he said.
Recent problems with water quality at the resort come from the distribution side of the water system, Voltz said, and are not Veolia's fault. State officials say the resort's water has exceeded the recommended limits for tri- halomethanes on three occasions in the past four years. Tri- halomethanes are a byproduct of disinfecting the water. Prolonged exposure is believed to increase cancer risks.
Western Hills Water District runs the distribution system and essentially is managed by Diablo Grande officials.
The resort is also in default on a $900,000 loan to Oak Valley Community Bank. Bank chief executive officer Ron Martin could not be reached for comment Monday on the Chapter 11 filing. He told The Bee in January that the loan was secured by five home lots at the resort.
Stanislaus County Chief Executive Officer Rick Robinson said county officials have discussed the problems at Diablo Grande but don't see a role for the county in the situation.
"We did a preliminary analysis a couple of weeks ago," he said Monday. "I can't envision a situation where the county would be forced to step in. Our role is to stay back and let the private marketplace fix the problems," Robinson said.
Property taxes are the first thing collected in a bankruptcy situation, Robinson said, and the state is the administrator responsible for the water system.
"I think there are enough overall assets in the project that it will survive a Chapter 11," Robinson added.
Diablo Grande was approved by the county in 1993 and battled through two dozen lawsuits from environmental groups and farming interests before the first homes were approved 10 years later.
Headed by Panoz, a pharmaceutical entrepreneur, the project was built with very little public money. Panoz and his partners poured tens of millions of dollars into the golf courses, a winery, roads and the water system.
The development seemed on the verge of turning a profit when the housing market crashed, triggering the resort's financial woes.
Bee staff writer Tim Moran can be reached at email@example.com or 578-2349.