Luminent, Arco settle disputes; lender to get new equity, preferred stock, $1.3 million

By Caroline Salls

Pittsburgh, Dec. 29 - Luminent Mortgage Capital, Inc. requested court approval of a settlement agreement under which debtor-in-possession facility lender Arco Capital Corp. Ltd. agreed to withdraw its appeal of an order declaring that the company is not in default of the DIP agreement, according to a Monday filing with the U.S. Bankruptcy Court for the District of Maryland.

Also under the settlement, Luminent has agreed to make changes to its plan of reorganization.

Specifically, holders of Arco party claims will still receive 51% of the reorganized company's equity units, but these creditors will now also receive $1.3 million and perpetual preferred stock with a $2.75 million liquidation preference.

Dividends on the preferred stock will not be paid in cash, but will accrue until redemption or liquidation at a rate of 9% in year one, 10% n year two and 11% in year three and thereafter.

The settlement also requires the company to distribute the plan and disclosure statement to creditors for voting by Jan. 27 and set a Feb. 25 voting deadline. In addition, the plan must take effect by March 9.

The maturity of the DIP loan will be extended to March 9 from Jan. 31.

Arco has also agreed to provide $3.24 million in three-year post-confirmation financing, which will accrue interest at Libor plus 200 basis points.

As previously reported, the bankruptcy court declared that the company is not in default on the DIP loan on Oct. 22 after Arco said Luminent violated the agreement on Sept. 29 with a request to borrow $200,000 under the loan.

Arco claimed that Luminent breached the loan agreement by misrepresenting that it had used all available cash on hand and cash collateral before making the request. Arco said Luminent had about $200,000 when it made the request.

Luminent, a San Francisco-based real estate investment trust that invests in mortgage-backed securities and loans, filed for bankruptcy on Sept. 5. Its Chapter 11 case number is 08-21389.

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