California Coastal agent balks at additional capital requirement

By Caroline Salls

Pittsburgh, Aug. 3 - California Coastal Communities, Inc. pre-bankruptcy secured lender agent Wilmington Trust FSB is asking the U.S. Bankruptcy Court for the Central District of California to reconsider its order approving the company's request to enter into an exit financing commitment with Luxor Capital Group, LP, according to a Tuesday court filing.

Wilmington Trust said the company's announcement in Securities and Exchange Commission and court filings on July 28 that it must now raise an additional $15 million of subordinated debt and/or equity capital, as a closing condition of the exit facility is contrary to earlier claims that the proposed facility contained few conditions "and certainly none related to the debtors' liquidity."

"The single, most essential premise underlying the debtors' June 15, 2010 emergency exit financing motion was that the $184 million exit financing facility described in Luxor's commitment letter would provide the debtors with all of the liquidity necessary for an exit from bankruptcy," the agent said in the motion.

Specifically, Wilmington said California Coastal promised that the exit facility would give it enough liquidity to pay the agent and lenders in full in cash on the plan of reorganization effective date.

In addition, the agent said the company claimed the $184 million of financing would give it enough working capital to allow the plan to be confirmed and take effect by Aug. 31.

Wilmington Trust said it will be extremely difficult for the company to raise the additional $15 million under the circumstances and time constraints of its bankruptcy case.

Luxor's exit financing commitment expires on Aug. 31. The agent said Luxor could assert a break-up fee if the plan does not take effect, which could lead to litigation and potentially to an additional $6.4 million in administrative expenses.

"What the new condition/modification to the commitment letter really demonstrates is that, in order to move forward with their plan, Luxor and the debtors require the agent and lenders to accept a further $15 million discount on their indebtedness that the agent and lenders are not prepared to accept," Wilmington said in the motion.

As an alternative to reconsidering the exit commitment approval, the agent asked the court to at least stipulate that the company's estates are not liable for the break-up fee if the plan does not take effect because it is unable to secure the additional capital.

California Coastal Communities, a residential land development and homebuilding company based in Irvine, Calif., filed for bankruptcy on Oct. 27, 2009. Its Chapter 11 case number is 09-21712.

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