SAN FRANCISCO — The massive bankruptcy filing of the developers of the Lake Las Vegas resort may be heading to a resolution this year, with the debtors proposing a Chapter 11 exit plan they say will provide the best outcome for municipal bonds affected in the filing.
Muni bonds aren’t at the center of the bankruptcy. But over the years, more than $100 million of land-secured local improvement district bonds were sold to finance infrastructure for the resort development, which is located 24 miles east of the Las Vegas Strip.
Beginning in the late 1980s, developers built an artificial lake and surrounded it with three golf courses, two luxury hotels, a casino, a shopping center, and more than 1,600 homes on more than five square miles.
Plans called for development of thousands more homes, but the Great Recession intervened.
The original master developers, Transcontinental Properties Inc., went into default in 2007 on a $540 million loan syndicated by Credit Suisse, putting the resort developer in the hands of creditors through the Lake at Las Vegas Joint Venture LLC, which filed for Chapter 11 bankruptcy in conjunction with 14 other affiliates in July 2008.
According to documents filed in the bankruptcy case, the city of Henderson set up three different local improvement districts to sell tax-exempt bonds to finance basic infrastructure for the development, such as roads and utilities.
The debts are solely secured by tax assessments on the properties. Stone & Youngberg LLC underwrote all the LID deals.
Henderson Local Improvement District No. T-1 and Henderson Local Improvement District No. T-12 issued bonds in 1994 and 1998 respectively, and they appear to be performing as intended, without severe delinquencies, according to disclosure documents filed with the Municipal Securities Rulemaking Board.
But the most recently established district, Henderson Local Improvement District No. T-16, for which $40.3 million of unrated bonds were issued in 2005, appears to be sputtering, according to disclosure documents as well as court documents filed in connection with the Lake Las Vegas bankruptcy.
The delinquency rate for the T-16 district was more than 33%, according to an annual disclosure report accessed through the MSRB.
While sale of delinquent parcels is scheduled in April, two of the parcel owners — each representing more than 10% of the assessment levy — are in bankruptcy and therefore the parcels cannot be sold, according to the disclosure. The bankrupt parcel owners are not part of the Lake at Las Vegas Joint Venture filing.
The 1,371-acre T-16 district is rife with mechanics’ liens filed by contractors, as well as other disputes that need to be resolved in bankruptcy court.
Most of the bond proceeds remain in the hands of the trustee, because Henderson will not release the funds until after the infrastructure improvements are built and conveyed to the city, according to the debtors’ proposed restructuring plan.
The next scheduled milestone in the case is a March 19 hearing on the disclosure statement that Lake at Las Vegas Joint Venture and its affiliates have prepared for their proposed Chapter 11 reorganization plan.
If and when Judge Linda B. Riegle of the U.S. Bankruptcy Court for Nevada approves the disclosure statement, the next step will be a creditors’ vote on the Chapter 11 reorganization.
In its proposed disclosure statement, Lake at Las Vegas Joint Venture paints its Chapter 11 plan as essential to resolving the issues related to the T-16 local improvement district.
“The conversion to Chapter 7 would be detrimental to the community and virtually all of the debtors’ creditors,” the statement says. The statement lists eight adverse consequences to a Chapter 7 filing, one of which is that “debtors cease paying LID assessments and property taxes, potentially triggering a default on the LID bonds and the potential collapse of the LID financing arrangements.”
The unrated T-16 bonds trade fairly thinly. A block of the final maturity, 2025 term bonds, changed hands in October at 37 cents on the dollar, MSRB data shows. There was some trade activity on the 2016 maturity in July 2008, around the time of the bankruptcy filing, at about 72 cents.
Under the reorganization plan, there would be up $15 million in loan financing to complete the T-16 district, though there are separate arguments before the court over who would be entitled to receive reimbursement from Henderson.
The case is further complicated by larger allegations about Credit Suisse’s role, not only in the Lake Las Vegas development, but also in financing a series of resort developments in the west that went belly-up in the recession, including Club Yellowstone in Montana and the Tamarack ski resort in Idaho. Opponents of the reorganization plan argue, essentially, that Credit Suisse set up the Lake Las Vegas developer to fail by loading it up with loans it couldn’t possibly repay.
According to the proposed reorganization plan, the former owners of the Lake Las Vegas developers, Transcontinental Properties, borrowed $560 million in 2004, and used the proceeds to make $470 million in cash distributions to themselves.
Creditor Carmel Land & Cattle Co., in its formal objection to the disclosure statement, said that in the Club Yellowstone case, the bankruptcy judge in Montana subordinated $232 million of Credit Suisse’s secured claims to those of unsecured creditors, because of the Swiss bank’s conduct in setting up the loan.
In accepting the proposed Chapter 11 reorganization plan, creditors would be asked to settle their claims against Credit Suisse, with general unsecured creditors getting about a 4.5% distribution on their claims. If they don’t, they are likely to end up with nothing after the $127 million debtor-in-possession financing is repaid, the disclosure statement argues.
As the court case drags on, conditions appear to be deteriorating at Lake Las Vegas itself. Only one of the three golf courses still operates. Earlier this month, the owners of the Ritz-Carlton at Lake Las Vegas, one of three hotels at the resort, announced it would close in early May.
The hotel facility itself is owned by a subsidiary of Deutsche Bank after a foreclosure. Ritz-Carlton said the bank was not willing to fund continued operating losses, according to published reports.
Soon after the Ritz-Carlton announcement, the only casino at Lake Las Vegas, Casino MonteLago, announced that it would close in March.