Patterson Irrigator

At a glance

• WHAT HAPPENED: Diablo Grande was granted a continuance of a bankruptcy hearing at which it was scheduled to be sold and a settlement with its creditors approved.
• WHAT IT MEANS: Negotiations with potential buyers are not going as well as Diablo Grande officials had hoped. They must come to an agreement on the major aspects of the sale by Aug. 28, and they must satisfy the judge’s concerns over aspects of the sale and the settlement.
• WHAT’S NEXT: The sale and settlement will be approved (or not) at the Aug. 28 hearing. Diablo Grande’s attorney said the company has only enough money to continue operating through next week, so it is imperative for them that the sale goes through.

MODESTO — The saga continues.

DOWN TO THE WIRE: Sale negotiations for the Diablo Grande development continue after its officials were granted a postponement by a judge in the U.S. Bankruptcy Court in Sacramento on Tuesday. But with the company running out of money, the pressure is on to seal a deal by Aug. 28. Photo by Elias Funez / Patterson Irrigator

The troubled golf resort and housing development — which is some $43 million in debt and has been unable to find a buyer since filing for bankruptcy on March 10 — was set to be sold Tuesday at a hearing at the U.S. Bankruptcy Court in Sacramento.

But its attorney, Michael Ahrens, requested that the hearing be postponed until Aug. 28 so sale negotiations can continue. Judge Robert S. Baldwil granted the request and scheduled the hearing for 10 a.m. Aug. 28, again in Sacramento.

About a dozen interested spectators — mostly Diablo Grande residents and land owners — viewed Tuesday’s hearing at a teleconference at the U.S. Bankruptcy Court in Modesto. The next hearing is also expected to aired by teleconference there.

Ahrens said in court that Diablo Grande officials will meet with one potential buyer this afternoon, and another is flying in tomorrow. Ahrens did not specify the reasons why a sale has not yet been agreed upon.

The settlement between Diablo Grande and its numerous secured and unsecured creditors is contingent upon a sale price of at least $26 million. The sale would also require the buyer to assume contracts like the one with Western Hills Water District, which provides water to the project.

Those are all potential sticking points that could be slowing the negotiations.

“We have not been able to get exactly what we wanted, but we think we can get there,” Ahrens said.

The postponement might have temporarily saved Diablo Grande from one major stumbling block. Bardwil detailed concerns he has with both the sale motion and the proposed settlement and indicated that he likely would not approve them as they are currently written.

Bardwil’s concerns seemed to stem from the releases being granted to “insiders” — creditors directly involved with financing and operating Diablo Grande — who would significantly reduce their financial claims against Diablo Grande to help facilitate the settlement with other creditors. In some cases, those claims would be erased altogether.

That, along with the lack of detail regarding the distribution of sale proceeds among a group of unsecured creditors, was part of what Baldwil called a “laundry list” of factors that point to the settlement being a “de facto plan” of reorganization.

A “de facto plan” is a term used to describe a sale that essentially sidesteps the protections given to creditors under the normal reorganization process of Chapter 11 bankruptcy. Even though all creditors have agreed to Diablo Grande’s proposed settlement, Bardwil said there needs to be more disclosure from the creditors regarding their reasons for consenting to the settlement.

Ahrens said Bardwil’s concerns came as a surprise and indicated that the group of creditors might try to convince Bardwil the settlement should go through as written. Bardwil cautioned against that, and Ahrens later said more disclosures would likely be provided.

“I’m infinitely more comfortable with that than the notion of trying to convince me that this is not a de facto plan,” Bardwil said.

The onus is now on Diablo Grande to prove by Aug. 28 that its sale and settlement should be approved. It’s not the only deadline the project is facing.

Diablo Grande has taken out more than $2 million in loans in order to continue operating during the bankruptcy sale process. Ahrens indicated that money — part of which is used to run the water district — is about to dry up.

“We have enough proceeds to continue to fund payroll through next week with existing financing,” Ahrens said. “We think we can conclude negotiations with our prospective purchasers by that time.”

A financial summary for the month of July filed with the bankruptcy court showed Diablo Grande with expenses totaling $622,559 and revenue of just $31,396 — though the company came out slightly ahead for the month thanks to a loan amount of $657,456.

The expenses included more than $400,000 that was transferred into an account for accrued and unpaid professional fees. The financial summary showed Diablo Grande’s cash balance at the end of July at $118,921.

To reach James Leonard at the Irrigator, call 892-6187 or e-mail This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

Comments (7)

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written by Me , August 19, 2008

of this is that the Judge is starting to ask quesitons about why Oak Flat Golf kept the founding golf members money when they do not own the course, why the HOA is owed so much, the water district financial problems, etc. Mr. Panoz is starting to get questions about how various comanies intereact and are their fraudulent moving of money taking place.

Also, the question was brought up why Mr. Sanders is being given 5 acres of land, and for what in return did he give. I certainly do not think it was a bonus for his performance.

Sorry to say, but I told everyone that this sale was going to have hair balls.

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anyone that has answers...
written by Resident Concerned... , August 19, 2008

What is the reality or probability that DG will go under and how will that affect the homeowners? Will we have to move out of DG?

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Resident concerned
written by Me , August 19, 2008

When you say go under, what do you mean. In real terms, DG looks like it will fall into Chapter 7 which means that the secured creditors such as Bank of Scotland will own the property. But it is very complicated. Very. I believe that most Buyers are waiting for this to happen so that they can buy at much lower prices than the $26M.

Panoz could have sold this for over $125M over 2 years ago. He walked away from the closing table because he wanted $5M more. Now, he wants to give it away.

No, you will not have to move out. Water service will continue. However, the costs to live there may go up by a little or a lot.

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written by DG Resident Concerned... , August 19, 2008

Thanks for your info. Do you believe the golf courses will remain no matter if the banks own it or not? It would seem to make sense considering they are the only thing that is generating some revenue up at DG.

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DG Resident
written by me , August 20, 2008

The golf courses are run by a golf management company and are seperate from the Debtor. You state that it is the only thing generating revenue, but is the operations making money? The answer is no.

My bets are that if things get tough, the golf courses will close for a period of time.

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written by DG Resident , August 22, 2008

I know the golf courses are being managed by a golf management company, however, who owns the golf courses if it isn't the "debtor"?

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DG REsident
written by me , August 26, 2008

The golf courses are owned by the debtor and under contract with Sierra Golf. The debtor has already recieved the money from Sierra for the golf rights. Whoever buys the debtors property, owns the golf courses, and this is where I do not know for sure, but think that the Sierra's contract is a*sumed by the new Buyer.

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