BRADENTON, Fla. — In an unusual outcome for a Chapter 11 bankruptcy case involving a south Florida community development district, bondholders have taken ownership of the 120-acre bankrupt Town Center near Miami.

Bankruptcy Judge Robert Mark June 22 approved a joint plan of reorganization after the Landmark at Doral Community Development District bondholders won title to the largely undeveloped land with a stalking horse bid of $67.5 million when no bidders came forward at auction.

"This case has a lot of moving parts," said bondholders' attorney Phillip Hudson, a partner at Arnstein & Lehr LLP. "It was clearly a good result."

Bondholders are owed about $130 million, and plan to sell off the land to recoup as much of their investment as possible.

Hudson said he did not know if bondholders would be made whole after the land is sold, though he noted that the current bondholders did not purchase the bonds at par.

"I think the bondholders will come out far better than they might have," he said.

Hudson also called Doral a "landmark" case because the result is counter to another bankruptcy judge's ruling last year in which Fiddler's Creek CDD bondholders were not allowed to participate as creditors in developer's Chapter 11 bankruptcy case.

That enabled Fiddler's developer to successfully propose a reorganization plan that restructured the bonds, and the assessments on the land that pay back the debt.

The ruling in Fiddler's, near Naples in southwest Florida, was believed to be the first of its kind in a CDD. Some experts said the case strategy likely would be a precedent for other developers that used tax-exempt bond financing through CDDs to pay for infrastructure. The so-called dirt bonds are typically secured by assessments on properties.

In Doral, however, Hudson said bondholders, the trustee and CDD objected to the developers' plan of restructuring, which proposed a "substantial" write-down and restructuring of the bond debt.

"We had enough material, substantive objections that the judge decided that he could not replace the discretion of the district to modify how the bonds impacted the land" and the assessment structure, he said.

"One of our arguments was that a bankruptcy cannot do a reassessment. That is the sole providence of the CDD," Hudson said.

The developer could not demonstrate that the assessments could be restructured because the CDD and its board aligned with bondholders, he said. "In our case the district did not consent to restructuring the bonds."

In Fiddler's bankruptcy case, though, the CDD board did align with the developer, consenting to adjusting the assessments and modifying bond repayments against the wishes of bondholders, according to Andrew Sanford, chief investment officer for ITG Holdings in Naples, which is a bondholder in Fiddler's.

Sanford said he is familiar with Doral, and "it is a different case because [Fiddler's] did not work as far as the district not listening to bondholders, and that's an aberration.

Sanford said he believes that a CDD should assert its rights as a creditor.

Another difference between the two cases is that only a parking garage and infrastructure has been built at Doral, and there are no residents.

Fiddler's has thousands of homeowners and "it may be more difficult for a district [board] to know how to vote" in a bankruptcy with residents in mind, Sanford said, adding that Doral has no constituents.

"It would have been interesting to see if [Doral bondholders] wouldn't have gotten the CDD to vote with them," Sanford said. "That would have set it up more like the Fiddler's Creek situation."

Sanford said that it is "interesting" that Doral bondholders could purchase the land while maintaining the outstanding bonds and underlying assessments.

"It was a beneficial outcome to the bondholders certainly," he added.

Hudson said that he does not believe that a CDD can consent to the adjustment of assessments, which would violate the indenture and "the contract between bondholders and the district."

"The district cannot take actions contrary to the interests of bondholders," he said.

In future cases, Hudson said attorneys should study Doral's case arguments and rulings, which led the judge to disapprove a plan of adjustment that involved the structure of the bonds.

"It will be unlikely that [CDD] bankruptcies in the future will allow an improper restructuring for a debtor that hasn't paid bills in three or four years," he said. "It will quicken the process of either closing down the CDD and have someone else redevelop it, or get the CDD back on course.

"It's basically, hopefully, put a bullet in the Fiddler's head and it's become an anomaly that can be explained away," Hudson said.

In Doral, competing plans of adjustment were proposed but ultimately the developer agreed with bondholders, the CDD and the trustee on the strategy to auction the land. Bondholders agreed to pay several millions of dollars to pay for some claims, a payment to the debtor, and to pay taxes and other fees due on the land.

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