MODESTO — A U.S. bankruptcy court ruling Wednesday will allow Diablo
Grande to receive nearly $1.5 million in financing through early June
to help the bankrupt development stay afloat.
Judge Robert Bardwill agreed to sign an order to permit the funding, as developers of the West Side community plan to sell the project. Attorneys expected the final order would be available for the judge to sign by the end of this past week. However, it was not filed with the courthouse as of press time.
“It’s a big step going forward,” said Dwain Sanders, vice president of development for the developing community, after the hearing. “This will give us enough runway … to keep the water flowing.”
Diablo Grande, nestled in the hills about 8 miles southwest of Patterson, contains about 460 homes, two golf courses, a winery and vineyards in Oak Flat Valley. There also are plans for a hotel, spa, shopping center, a revamped winery and a business park.
Diablo Grande’s legally approved 2,250-acre first phase could include up to 1,341 homes, and developers eventually hope to have about 5,000 homes on 33,000 acres.
Parent company Diablo Grande Limited Partnership filed for Chapter 11 bankruptcy March 10 after months of financial woes. Those included hundreds of thousands of dollars in mechanic’s liens, close to $3 million owed to Diablo Grande’s wastewater service provider and nearly $900,000 to Oak Valley Community Bank.
Diablo Grande also closed its Ranch golf course in December and its Legends course in February, mainly because of financial problems. Those courses reopened last month under the management of Chowchilla-based Sierra Golf Management.
Bardwill approved interim orders in March and earlier this month that allowed a smaller amount of funding to tide Diablo Grande over until Wednesday’s hearing. Those plans allowed for payment of water, electricity, phone service and other necessities, but deferred payment on payroll taxes and worker’s compensation insurance, among other fees.
The temporary funding was included in the $1.48 million total, Diablo Grande attorney Michael Ahrens indicated by phone this week. Georgia-based Fountainhead Development Corp., headed up by Diablo Grande developer Donald Panoz, is offering the loan to the bankrupt development.
Bardwill still expressed concern Wednesday that Diablo Grande appeared to have no exit strategy for getting out of debt in six weeks’ time. He wanted to ensure that any financing agreement would not trump Chapter 7 bankruptcy agreements if the development was forced to sell its assets.
Chapter 7 bankruptcy cancels one’s debts but could allow the court to mandate property be sold for the benefit of creditors. Chapter 11 bankruptcy, which the development is now undergoing, allows companies to reorganize rather than sell assets.
“I don’t want to prejudice a Chapter 7 trustee’s rights if this plan doesn’t work out,” Bardwill said.
Attorneys representing Diablo Grande, financers and some creditors said they understood the conditions and that they were all on-board with the plan. That included an attorney with Livermore-based construction company Mountain Cascade, which is owed close to $300,000 and previously had opposed the plan.
Sanders said Diablo Grande is working on another financing plan that would provide enough funding to keep the development running through July. The goal is to sell the project to another buyer by that time.
The project went up for sale for $150 million in November and dropped to $85 million this week.
Bankruptcy documents indicate some past offers have ranged from $42 million to $75 million.
Now, the limited partnership is considering three serious offers, Sanders said, though he declined to give further details.
“It’s great,” Sanders said. “We’re getting some significant people coming in.”
To reach Jonathan Partridge at the Irrigator, call 892-6187 or e-mail him at email@example.com