Patterson Irrigator

•  For more on Diablo Grande’s bankruptcy, visit the PI Connect blog

The bankrupt golf resort and housing development made the announcement at a hearing Thursday at the U.S. Bankruptcy Court in Sacramento — shown via teleconference in Modesto — and seemed to make significant progress in convincing the judge that its sale and the settlement with its creditors should be approved.

There’s no sale just yet — Diablo Grande requested and was granted a continuance to Sept. 9 to finalize terms of the agreement — but it’s a start.

World International LLC, a resort developer with projects in places like Cancun, Mexico City and Cabo San Lucas, is apparently willing to pay $20 million for the land, golf courses and unfinished lots at Diablo Grande, as well as the $1.5 million “cure amount” to pay off debts and assume contracts with water provider Western Hills Water District and others.

Diablo Grande attorney Michael Ahrens said the two sides were still a few days from hammering out the details of the asset purchase agreement.

That agreement will be contingent upon an engineering study World International plans to undertake, but an attorney representing the developer said he believed there was nothing that should hold up the sale.

“I’m very optimistic those issues (of the agreement) will be able to be resolved,” World International attorney Michael Breslauer said. “I think we have a very eager and willing seller. The buyer is very interested and has the wherewithal and the ability and the strong desire to close this transaction in a timely manner.”

So does just about everyone else.

Judge Robert S. Bardwil heard as much from representatives on all sides of this lengthy bankruptcy, which was originally filed March 10. The urgency comes from Diablo Grande’s financial situation.

There’s very little money left to operate Diablo Grande. The Bank of Scotland — the development’s top secured creditor, owed about $21.5 million — has committed to loaning another $200,000 when a purchase agreement is signed so Diablo Grande can continue operating while the sale is completed.

But with holding costs of about $1 million a month, that won’t last long. Ahrens said he’ll seek $900,000 from so-called “insiders” — companies like Oak Flat Golf and Isom Ranch Winery and Vineyards that have helped fund and operate Diablo Grande and who owe the project a total of more than $11 million —to keep things running through the end of September.

By that time, if all goes well, the sale and settlement will be approved, and World International will have completed its engineering study.

It wasn’t clear heading into Thursday’s hearing, though, that the settlement would be approved even with a willing buyer.

The settlement that had previously been agreed to was contingent upon a $26 million sale price. Since that price will not be reached, the additional money has to come from somewhere else.

Much of it will come from the “insiders,” who had previously been granted releases from debt — a move Bardwil found suspicious. The judge initially questioned the motives the insiders had for suddenly coming forth with extra money to facilitate the settlement.

“It strongly suggests that the insiders were trying to pull a fast one,” Bardwil said. “We have $11 million owed to the debtor by insiders that are being released. Now we have additional concessions being made by the insiders, and I can’t tell if those are because these releases have come to the forefront … I have no idea.”

An attorney representing a committee of unsecured creditors said that those creditors were willing to allow insider debts to be released because, after looking into the financial standing of the insiders, it became clear that they were insolvent and that no significant money could be obtained from them.

Attorney M. David Minnick, representing Diablo Grande developer Donald Panoz and his “insider” companies, said Panoz has been loaning Diablo Grande money “to the end” to keep it running until a sale could be completed. Those loans, he said, offset most of the money that had been given to his companies by Diablo Grande years ago.

Minnick said the recent loans to Diablo Grande indicate Panoz’s desire to get the project sold so that residents won’t be adversely affected. If a sale is not approved, the project could go into Chapter 7 bankruptcy, and the water situation — along with everything else — would be put in limbo.

“We would like to see something that we started finish in a way that’s not an ugly mess with a lot of people getting hurt,” Minnick said. “Mr. Panoz is that kind of person. He’s not a person who would hire a lawyer to try and sneak something past this court.”

Bardwil then heard pleas from Diablo Grande’s creditors, including unsecured creditors like pipeline construction company Mountain Cascade and the Diablo Grande Homeowners Association.

All did their best to convince Bardwil that they truly were in favor of the settlement and that they were aware of and willing to consent to the releases being granted to the insiders.

Most pleaded for a quick end to the whole thing, saying they were willing to compromise their own claims to get something now rather than risk getting nothing in Chapter 7 and going through years of litigation to recoup their losses in full.

Bardwil ultimately seemed receptive to their statements.

“Your explanations are accepted and taken at face value,” he said.

Bardwil went on to suggest ways the terminology of the settlement could be modified that would make it more likely to be approved. The ominous tone that had accompanied his assessment earlier in the hearing — and at the Aug. 19 hearing, when he first addressed the settlement — had all but disappeared.

He then rescheduled the hearing for Sept. 9. Barring any unforeseen developments, the sale to World International and the settlement between Diablo Grande and its creditors should be finalized and presented for approval at that hearing.

To contact 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

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