Long road ahead for Banning Lewis after bankruptcy

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The countdown has begun for Banning Lewis Ranch LLC, one in which it either reorders its finances and tries to get back to work or sells off what it can and dissolves away.

In the wake of its Oct. 27 bankruptcy filing, the company has 120 days to file a reorganization plan that satisfies creditors who are owed more than $242 million. And while all of the creditors will be submitting claims on Banning Lewis’ assets, there is a pecking order in case a restructuring falls through.

Key Bank, based in Cleveland, Ohio, was the second largest investor in the Banning Lewis Ranch property, and will be first in line to recover a portion of its funds should the reorganization fail and the company go to liquidation.

According to the bankruptcy filing, Key Bank is the only entity to have secured a claim on its loan. The bank lent Banning Lewis $65.5 million, $25 million of which was secured, and would have first rights to a portion of the developer’s assets, listed as $50 million to $100 million in its Chapter 11 filing.

Next in line are company employees, contractors and developers with statutory liens, although these amounts are considerably smaller. The big dollars lie with the unsecured investors who will vote on Banning Lewis’ proposed reorganization plan.

These investors include Greenfield BLR Partners (which declined to comment for this story) at $70.2 million, Farallon BLR Investors at $35 million, and a Banning Lewis subsidiary that contributed $14.7 million to the project.

The subset of creditors who fall outside of these categories have the lowest potential for recouping funds in a liquidation, according to University of Colorado Business Law Professor Mark Lowenstein.

“Anyone who provides services to the contractor but doesn’t have a statutory lien will take the biggest hit,” he said.

The group includes accountants and lawyers.

Ernst & Young is the only accounting firm listed in the filing, with claims totaling $183,378. The firm declined to comment on its prospects for recovery.

Because Banning Lewis’ assets are dwarfed by its debts, a fully developed Banning Ranch, though years from completion, might be the best shot investors have at fully recovering capital.

To do this, Banning Lewis will have to convince the bankruptcy court that the finished property is worth the wait by submitting a viable operating strategy and a debt restructuring that will likely be a bitter pill for investors to swallow.

“One of the most difficult things they’ll have to answer is whether or not they can sell the lots,” said bankruptcy attorney Paul Gefreh. “If they can’t find builders willing to buy the lots because there are no buyers for the homes, then they won’t be able to put together a successful reorganization plan.”

Creditors will have to weigh the cost-benefit of a quick settlement through immediate liquidation, or giving Banning Lewis another chance to see whether the property can become profitable in the long term.

“It all depends on what their plan is, and where the property is valued,” Gefreh said. “If they can hang in there a few years, they may have hundreds of millions in those lots. In a five-year plan, investors might get 90 to 100 cents on the dollar, and in a two-year plan they may only get 10 cents on the dollar.”

For now, there seems to be some hope that the property will continue to be managed by its current developers.

“Common sense suggests that the present management team is the only one qualified to maximize the value of that asset,” said Colorado Springs developer Steve Schuck. “This is a multi-decade project and the skills required to move a 21,000-acre development are not found in everyday real estate operatives. It would take someone else months or years to get where the present management exists.”

Company officials say that 700 of the 1,050 lots so far developed have been sold or are under contract, and Oakwood Homes Division President Jay Walther plans to move forward with construction on 50 home sites currently under contract.

But that’s a long way from the 75,000 homes that Banning Lewis Ranch was supposed to see over the course of its development.

Selling the property to a new group of investors is always a possibility, although those prospects seem unlikely in this contracted lending environment.

“The scale of this project eliminates 99.9 percent of buyers,” Schuck said. “The market eliminates the rest.”

Largest commercial bankruptcies since 2000

The Banning Lewis case is one of largest commercial bankruptcies in El Paso County during the past decade. Other notable filings include:

WL Homes dba John Laing Homes. Filed for Chapter 11 in 2009, listing $977 million in liabilities and $1.3 billion in assets. Unable to restructure, WL Homes was forced to file Chapter 7 liquidation.

Imperial Sugar Co., (Holly Sugar Corp.). Filed for Chapter 11 in January 2001, listing $775 million in liabilities and $1.09 billion in assets. Was back in business in August 2001 after downsizing. In 2005, Holly Sugar Corp. was sold to Southern Minnesota Beet Sugar Cooperative. In 2006, FirstBank purchased the company’s 14-story building on North Cascade.

National Benevolent Association. Filed for Chapter 11 in 2004, listing $293 million in liabilities and $372 million in assets. By 2005, the court approved the sale of most the association’s properties, and owners of bonds were paid back principal and interest. The nonprofit restructured and continues operations today, with different management companies assuming control of the Colorado Springs developments.

SRKO Family Limited Partnership. The developer of Colorado Crossing, it filed for Chapter 11 in 2010, listing $82.1 million in liabilities and $38.6 million in assets. In late September, developer Jannie Richardson’s attorneys offered to sell 17.5 acres of the 153-acre project to pay off the debt. The case remains unresolved.

— Nathan Rodriguez