(Updates with judge’s remarks in fourth paragraph.)
Oct. 24 (Bloomberg) -- Lehman Brothers Holdings Inc. settled a dispute with developer SunCal Cos. over how to reorganize a group of bankrupt California housing projects.
SunCal agreed to support reorganization plans sponsored by the Lehman affiliate that helped finance about 20 developments in California, where the two companies had been partners until the investment firm filed for bankruptcy in 2008, according to court papers filed today. A SunCal affiliate will get an option to buy two of the projects for $57.5 million and be paid $3 million under the proposed settlement.
Last week, Lehman and SunCal had been preparing to go to court over competing reorganization plans for the developments, which may be worth as much as $461.5 million, according to court papers.
“What a difference three days makes,” U.S. Bankruptcy Judge Erithe A. Smith said at a hearing today in Santa Ana, California, referring to weekend talks that resolved the dispute.
The deal requires SunCal to drop a group of lawsuits against Lehman affiliates over how the developments were funded. Smith and the judge overseeing New York-based Lehman’s bankruptcy case in Manhattan must approve the settlement.
Attorneys for Lehman and SunCal told Smith they are still working to resolve differences over the future of a few of the projects.
Lehman and SunCal formed joint ventures throughout California to develop thousands of acres of land. Lehman helped finance the projects with more than $2 billion before seeking bankruptcy protection in 2008, at the height of the global financial crisis.
Lehman had proposed auctioning some of the projects and letting it “credit bid” what it claimed to be owed as the secured lender for the developments. SunCal disputed many of those loans and objected to allowing Lehman to trade the debt for ownership of the projects. SunCal proposed its own plans for many of the developments.
A week-long court hearing was scheduled to start today over which of the competing sets of plans Smith should approve.
The projects include residential developments in the Southern California desert and beach communities in Orange County.
The bankruptcy case is In re Palmdale Hills Property LLC, 8:08-bk-17206, U.S. Bankruptcy Court, Central District of California (Santa Ana).
--Editors: Stephen Farr, Andrew Dunn
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