From the Daily Record:
Bankruptcy court OKs Kara Homes reorganization plan
A bankruptcy judge has confirmed the reorganization plan of Kara Homes, enabling the once-leading builder to exit Chapter 11 protection as a smaller company controlled by a Connecticut hedge fund and a New Jersey developer.
Judge Michael B. Kaplan of the U.S. Bankruptcy Court in Trenton on Wednesday approved Kara’s Chapter 11 plan, which combines the reorganization of a dozen New Jersey housing developments along with the liquidation of others, according to Kara bankruptcy attorney Joseph J. DiPasquale.
The judge also confirmed a supplemental plan giving control of a Kara development in Mount Arlington to WCP Real Estate Strategies Fund.
The main proposal calls for a partnership between hedge fund Plainfield Specialty Holdings II, developer Glen Fishman and San Diego buyout firm Del Mar Capital to invest about $12 million in a restructured Kara Homes.
Of that investment, about $2.25 million is set aside for the builder’s unsecured creditors. They will also share in the recoveries from any lawsuits filed on their behalf by a liquidation trust.
Upon Kara’s emergence from Chapter 11, Plainfield will own 60 percent in the reorganized builder, with Del Mar and Fishman each receiving a 20 percent stake, said DiPasquale.
He said the new owners expect to sink about $92 million into Kara Homes in three years to complete some developments the company started but was forced to shut down when it filed for bankruptcy. In addition, Kara’s $26 million bankruptcy loan will be converted to a revolving loan.
Shares held by Kara Homes founder Zuhdi Karagjozi will be canceled. However, the plan releases Karagjozi from any personal guarantees he might have made to the company’s lender.
I’ve closely followed this case since its beginning and I believe it defines many problems associated with the bankruptcy reorganization process. While there are those who would paint a positive spin on its results (including the bankruptcy judge), my sense is creditors would have received more and professionals via their fee applications less, if the case had simply been converted to a Chapter 7 liquidation.