Emaar Properties lost a bid to buy its way out of trouble with its failed U.S. home-building business and is in talks with creditors aimed at heading off liquidation of WL Homes, news agency Dow Jones reported on Friday.
Dow Jones said Judge Brendan Shannon acceded to creditor demands that he convert WL Homes' Chapter 11 bankruptcy case into one under Chapter 7, but he held up implementation of the order while the company and creditors try to work out their differences.
Conversion would put WL Homes, which operates under John Laing Homes, in the hands of a trustee, who would try to get a better price for the operation than Emaar was offering. It would mean the proposed Chapter 11 auction of the company that was once one of the largest private home builders in the U.S. is off, and the bankruptcy financing Emaar was offering is no longer needed.
Unsecured creditors called for conversion of WL Homes' bankruptcy case because, they said, they would get more from a trustee-run liquidation than they were being offered through an Emaar-dominated auction.
Talks are aimed at a deal by Tuesday that might head off conversion of WL Homes' bankruptcy case, David Neier, an attorney for the official committee of unsecured creditors, said in an interview Friday. He is with Winston & Strawn.
Even before the ruling, WL Homes offered to negotiate with creditors about bumping up the chances they will get something out of the bankruptcy case.
Conversion to the shoestring liquidation form of bankruptcy will make little practical difference to the fate of WL Homes, the judge noted.
"We are looking at something that is functionally the same whether it's under Chapter 7 or under Chapter 11, we're looking at a sale," Shannon said. "Nobody's talking about reorganising or restructuring or rebuilding this business."
Sales under Chapter 11, however, are commonly thought to be better for creditors because there is money to spend on investment bankers and lawyers to chase down the best deal.
WL Homes' creditors said that was not the case for the planned auction, which had Emaar poised to lead the bidding within weeks.
Emaar, of Dubai, paid more than $1 billion for WL Homes in 2006 and ploughed another $600 million into it before the Irvine, California, company collapsed along with the U.S. housing market.
In Chapter 11, Emaar offered to pay another $7 million in cash and absorb many of the liabilities attached to the business, a transaction that offered some hope of recovery to unsecured creditors.
Shannon did not fault Emaar or WL Homes over the auction proposal but said the "exceedingly difficult circumstances" of WL Homes case, where big money was riding on the housing bubble, produced bad Chapter 11 case economics.
Bank lenders were owed more than $350 million when WL Homes filed for bankruptcy in February. The company estimates it is worth $7 million in a liquidation.