Maui Land says Kapalua Bay may need alternative funding sources due to Lehman bankruptcy

By Jennifer Lanning Drey

Portland, Ore., Oct. 3 - Kapalua Bay Holdings, LLC may be forced to seek alternative funding sources to complete construction of a residential development on the Kapalua Resort in Lahaina, Hawaii, in light of the Lehman Brothers Holdings, Inc. bankruptcy filing, according to a filing made with the Securities and Exchange Commission.

According to the filing, which was made by Kapalua Bay Holdings majority owner Maui Land and Pineapple Co., Inc., Lehman failed to fund $35.6 million owed to Kapalua Bay LLC on Sept. 22 under a loan agreement.

Maui Land said members of Kapalua Bay Holdings have agreed to advance funds to the company. Combined with funding from lenders other than Lehman under the loan agreement, the funds will allow Kapalua Bay LLC to pay minimum progress payments under its construction agreement with Nordic/PCL.

However, the company said Kapalua Bay LLC would need alternative funding sources to continue to make the progress payments if Lehman continues to refuse to fund the obligations.

Alternative funding sources could include refinancing the Lehman loan with new lenders or seeking additional capital from Kapalua Bay members.

Members of Kapalua Bay Holdings are Marriott International, Inc. and Exclusive Resorts LLC.

Maui Land and Pineapple said it believes financing will be available to finish the construction, which is approximately 80% complete.

At the same time, however, the filing cautioned that failure to obtain the necessary funding would result in construction delays that could adversely affect results of operations.

Kapalua Bay Holdings is not contractually obligated to provide completed units until 2011, but construction delays could impact the timing and volume of sales.

At Sept. 30, total contracted sales for the project are about $310 million, representing about 40% of the units available for sale.

The company also said if it makes contributions beyond its already budgeted amounts, financing resources would be reduced for other operating activities, which could affect the financial condition of the company.

Kapalua Bay Holdings is the sole member of Kapalua Bay LLC.

Maui Land & Pineapple is a land-holding and operating company with a 51% ownership interest in Kapalua Bay Holdings.

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