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| Diablo gives it another go |
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| Written by James Leonard | Patterson Irrigator | |
| Wednesday, 27 August 2008 | |
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Bankrupt development hopes to have sale approved at Thursday hearing Where to watch A hearing to approve or reject the sale of Diablo Grande will begin at 10 a.m. Thursday 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)
Barring yet another unforeseen development, the Diablo Grande golf resort and housing development should be sold at a bankruptcy hearing Thursday. The sale, which is scheduled to be approved at 10 a.m. at the U.S. Bankruptcy Court in Sacramento, was initially supposed to take place at a hearing Aug. 19. But sale negotiations were still ongoing between Diablo Grande and at least two potential buyers, so Diablo Grande attorney Michael Ahrens requested that the hearing be postponed until Thursday. The move makes it at least somewhat more likely that Diablo Grande will entice a buyer to accept the terms of its asset purchase agreement, which includes a provision that requires the buyer to assume contracts like the one with Western Hills Water District, the development’s water provider. It also makes it more likely that Diablo Grande could negotiate a sale price of at least $26 million, the required amount written into a settlement between Diablo Grande and its numerous creditors. But it also adds a time crunch. Ahrens said at the Aug. 19 hearing that Diablo Grande, which has taken out more than $2 million in loans to continue operating during the sale process, only has enough money on hand to make it through this week. That could be bad news for residents, who rely on the water Diablo Grande has been providing by way of those loans. If a sale is not approved by the bankruptcy judge on Thursday, Diablo Grande might have no choice but to liquidate in Chapter 7 bankruptcy. The development would then likely be turned over to the Bank of Scotland, which is owed about $21.5 million and is Diablo Grande’s biggest creditor. The bank could then decide it doesn’t want to continue the contract with the water district, leaving residents in limbo. Some believe the state would then take over the obligation to the water district, but that also might mean passing the extra cost on to the residents. Lea Brooks, a spokeswoman for the California Department of Public Health, would not comment on the issue. “We are not going to speculate,” Brooks wrote in an e-mail last week. “Our action would depend on the decision of the bankruptcy judge.” That decision promises to be a complicated one. Judge Robert S. Bardwil said at the Aug. 19 hearing that there were aspects of both the sale and the proposed settlement that could be deal-breakers in his eyes. Bardwil said he was concerned about the fact that “insiders” — creditors directly involved with financing and operating Diablo Grande — were releasing their own financial claims to facilitate a settlement with other creditors. He also expressed concern with the structure of the settlement and the lack of detail regarding the distribution of sale proceeds among a group of unsecured creditors, and he said that should these concerns not be adequately addressed, he would have to deny the sale. Diablo Grande has been for sale since at least November, when Encino-based Marcus & Millichap listed the project for $150 million. It later dropped that price to $85 million, but no sale was completed. The developer filed for Chapter 11 bankruptcy March 10. To contact James Leonard at the Irrigator, e-mail This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .
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