LandAmerica debtor looks to sell notes and auction-rate securities

By Caroline Salls

Pittsburgh, Oct. 19 - LandAmerica Financial Group, Inc. debtor LandAmerica 1031 Exchange Services, Inc. requested court approval to sell tranche A notes to the issuer and to market and sell auction-rate securities, according to a Friday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

According to the motion, the company currently holds 20 tranches of subordinate student loan auction-rate securities with a total face value of $201.7 million.

LandAmerica 1031 said two tranches of the auction-rate securities are student loan asset-backed notes.

In addition to the tranche A notes, LandAmerica 1031 said its portfolio of auction-rate securities includes 18 additional tranches.

The company said it has decided to market and sell the auction-rate securities in an effort to maximize the value of its assets.

The LandAmerica debtor said it has been unable to liquidate its auction-rate securities at a price near their par value even though the amount of the cash and par value exceeds the value of all funds received from LandAmerica 1031's customers.

As a result, the company said its inability to sell, or borrow against, these auction-rate securities ultimately forced it to cease additional customer transactions, terminate operations and file its Chapter 11 bankruptcy case.

Because of the specialized nature of and the limited buyer base that exists for auction-rate securities, LandAmerica 1031 said it has decided to facilitate a marketing and sale of the securities through SecondMarket, Inc., a broker that specializes in those transactions.

Sale terms

The purchase price for the tranche A notes will be $9.64 million in cash, plus interest accrued as of the purchase agreement date, representing roughly 48.2% of the $20 million par value of the tranche A notes.

If LandAmerica 1031 chooses an alternate transaction, it will pay the buyer a 3% breakup fee and reimburse up to $100,000 of its expenses.

The buyer's name was not released.

Bid procedures

In addition, the company said it will list the auction-rate securities, including the tranche A notes, for sale through SecondMarket's platform at par value.

Once marketed, SecondMarket's platform will automatically match each of the securities with a list of potential investors based on SecondMarket's proprietary matching algorithm.

Potential buyers will have an opportunity to view the necessary documentation for each of the auction-rate securities in order to complete their own due diligence and to submit bid proposals.

LandAmerica 1031 will have absolute discretion to accept, reject or counter any bid proposal.

Upon the company's acceptance of a bid, SecondMarket and LandAmerica 1031 will enter into a purchase agreement, and the securities will be sold to SecondMarket, who will then sell them to the third-party buyer.

SecondMarket will earn a 2% commission.

LandAmerica, a title insurance underwriter based in Glen Allen, Va., filed for bankruptcy on Nov. 26, 2008. Its Chapter 11 case number is 08-35994.

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