According to an article in the September 21 edition of the Daily Bankruptcy Review, a for-pay publication of Dow Jones, October 15th is likely to be a key date that determines the fate of SunCal Companies and two dozen failed California real-estate projects, including Oak Knoll Naval Hospital in Oakland.
The fight between SunCal Companies and their former financial backer Lehman Brothers shows how such partnerships can sour. According the Daily Review article, Lehman Brothers wants to exit the failed projects from bankruptcy through the use of “credit bidding” which would allow creditors to the failed projects bid the amount they are owed to purchase the assets – e.g. the land – when it’s put up for liquidation auction. Such an approach would effectively squeeze SunCal, and their new financial backer D.E. Shaw, out of those deals. Lehman says the SunCal projects are “hopelessly insolvent” and that they have a value of no more than $350 million to $600 million, and debts of $2.4 billion. Lehman put $2.3 billion into the projects.
SunCal has been trying to bring D.E. Shaw money into the failed projects for some time now, and has asked the bankruptcy judge to bar the Lehman Brothers credit-bidding proposal. Evidently SunCal patriarch Bruce Elieff and his wife are personally on the hook for $230 million over loan guarantees they made related to the projects. It’s not clear if the Elieffs have the cash-on hand to meet the guarantees if forced to do so. An even bigger question is what the event might mean for SunCal Companies as a whole – if they lose the bankrupt California projects to Lehman’s creditors, what do they have left? Their Albuquerque, New Mexico project isn’t going well with their recent defeat over a state-level tax increment financing vote. (It also causes us to wonder what a SunCal – D.E. Shaw fight over a failed Alameda Point project might look like.)
According to the Daily Review article, U.S. bankruptcy court judge Erithe A. Smith is schedule to rule on the matter on October 15th, subject to a creditors vote on the competing plans.