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Diablo’s date with destiny approaches |
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Written by James Leonard | Patterson Irrigator
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Friday, 15 August 2008 |
Where to watch
- A hearing to approve or reject the sale of Diablo Grande will begin at 9 a.m. Tuesday at the U.S. Bankruptcy Court, 501 I St., in Sacramento. A live teleconference will be offered at the district bankruptcy court in Modesto, 1200 I St.
- For information: 916-930-4400 (Sacramento) or 521-5160 (Modesto).
- For updates on Tuesday's hearing, visit www.pattersonirrigator.com throughout the day.
 TURNING POINT: The fate of the Diablo Grande development, still under construction in the hills west of Patterson, hangs on a Tuesday bankruptcy hearing in a Sacramento courtroom. Photo by Elias Funez
And therein lies the uncertainty surrounding Tuesday morning’s hearing at the U.S. Bankruptcy Court in Sacramento — a hearing at which Diablo Grande officials hope a sale will be approved for the troubled golf resort and housing development.
An approved sale would end a six-month process that began when Diablo Grande filed for Chapter 11 bankruptcy March 10.
According to a motion filed with the bankruptcy court in Modesto on Aug. 5, Diablo Grande officials have reached a settlement with their creditors that is contingent upon a sale price of at least $26 million.
Sealed bids for the project were submitted to Diablo Grande’s attorney on Wednesday, and the top two bidders were chosen and notified yesterday. Those two potential buyers will submit their final offers Monday, and Tuesday’s hearing will determine whether a sale is approved by the court and the creditors.
If a sale is not approved, Diablo Grande could liquidate under Chapter 7 bankruptcy rules and could be turned over to one of the secured creditors, most likely the Bank of Scotland.
That could mean trouble for the 400 or so residents of Diablo Grande, who rely on the Western Hills Water District for their water. If the new owner decides not to assume Diablo Grande’s contract with the water district, which carries significant financial obligations of its own, there might be no water.
Michael Ahrens, the attorney for Diablo Grande, would not reveal any information about how the bidding process was going. But he expressed confidence that this worst-case scenario — that a sale could be rejected — would be avoided.
“We’re going to have a sale,” he said Wednesday. “I’m not going to talk about ‘doomsday.’”
Several objections were filed last week regarding the July motion that spelled out Diablo Grande’s sale process.
Ahrens said most of those were withdrawn once the concerned parties realized they were, in fact, going to get their money. Those included the city of Patterson, which was concerned about delinquent payments for sewer service in Diablo Grande, and Stanislaus County, which said it was owed some $4 million in property taxes.
Two of the objections remain unresolved and will likely stay that way until Tuesday’s hearing. The first is a claim by Veolia Water, which stated that it is owed $4.5 million for the construction, operation and maintenance of Western Hills’ water plant.
Veolia claims the $4.5 million should be added to the $1.5 million “cure amount” built into the sale to resolve debts and assume contracts with Western Hills and others. But Ahrens said Veolia sent invoices only to the water district and not to Diablo Grande itself, and therefore the claim is invalid.
And as carefully as the settlement with the creditors is crafted, he said, there isn’t enough wiggle room for that much money to be accommodated if the judge takes Veolia’s side.
“There’s not $4.5 million to pay them,” Ahrens said. “If they win on that one, there’s no sale.”
The other outstanding objection comes from the Diablo Grande Homeowners Association, which says it is owed HOA dues on more than 100 finished lots still owned by Diablo Grande for the period of time since the bankruptcy was filed.
Ahrens said the HOA is an unsecured creditor and therefore will get paid along with the “committee of unsecured creditors” based on the sale price.
According to the settlement filed Aug. 5, the minimum sale price of $26 million includes $16.6 million for the Bank of Scotland — which is actually owed about $21.5 million — as well as various payments to secured creditors like Fountainhead Inc., which loaned Diablo Grande money to keep operating during the sale process, and a pot of $850,000 for unsecured creditors.
As the sale price goes up, so do those payments. The Bank of Scotland will get 90 percent of the first $1 million over the $26 million minimum and 80 percent of anything above that until its entire loan amount is repaid.
The unsecured creditors’ pot will increase, as well, if the sale price goes above $27.5 million. Once that point is exceeded and the Bank of Scotland’s loan is paid in full, 20 percent of the excess proceeds will go into that pot.
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Mark Weller