U.S. Government Watchdog Objects to Hawaii Development’s Chapter 11 Plan

Hokulia

The government’s bankruptcy watchdog is objecting to a California developer’s plan to bring a long-stalled Hawaii development project known as Hokuli’a out of bankruptcy under the control of an investment group that includes the chairman of retailer Wal-Mart Stores Inc. (WMT).

Acting U.S. Trustee Tiffany L. Carroll, a Justice Department official who monitors the Hawaiian bankruptcy court, is objecting to the disclosure document of developer 1250 Oceanside plan to exit bankruptcy under the control of SunChase Holdings, a California real-estate investment firm.

The trustee said in a filing Friday in U.S. Bankruptcy Court in Honolulu that the document, called a disclosure statement, failed to explain how the plan’s backers intend to pay the project’s unsecured creditors.

“In the statement and plan, there is no information about when the [unsecured creditors’] fund will be funded, where the money will be held, and what parties can make a claim to the funds,” the trustee said.

The project is a partnership between SunChase owner William A. Pope and Robson Walton, Wal-Mart’s chairman. Forbes estimates the fortune of Mr. Walton, a son of founder Sam Walton, at some $21 billion.

But Ms. Carroll said the “statement’s citation to Forbes stating that Mr. Walton has a net worth of $21 billion does not satisfy feasibility unless that net worth is pledged to funding the plan.”

Companies must file a disclosure statement explaining how they intend to pay creditors, along with their Chapter 11 plans. The disclosures must pass muster with a bankruptcy judge before creditors can vote on the proposals.

The Chapter 11 plan, backed by $65 million in exit financing from a SunChase affiliate, would bring the real-estate project, long dogged by legal challenges and financial woes, out of bankruptcy.

The developer estimates the project’s current value is about $68 million, far less than the more than $600 million in debt owed to lenders.

The Chapter 11 plan gives control of the project to entities controlled by Messrs. Pope and Walton, with SunChase providing the key personnel for the development team, according to court papers.

About $20 million is earmarked to the county of Hawaii for the completion of a highway to serve the South Kona region of the Hawaii’s Big Island. Another $15 million is owed to a local family that had sold the developer 250 acres of land on the west side of the island in the coffee-growing and cattle-ranching region of Kona. The plan calls for the family, which is seeking a continuation of the disclosure hearing, to get back 28 1/2 acres plus a new $6 million note.

A hearing on the disclosure statement is slated for Sept. 16 in Honolulu.

First planned in the 1990s by Arizona developer Lyle Anderson as a 1,500-acre luxury neighborhood on Hawaii’s Big Island, the project stalled amid multiple legal challenges and the global financial crisis. Mr. Anderson, who has developed golf communities in Arizona and Scotland, hasn’t been involved in the project since 2008, according to court papers.

A subsidiary of SunChase Holdings purchased about half of the nearly $1 billion in debt Mr. Anderson’s entities owed to Bank of Scotland several years ago. The company put 1250 Oceanside Partners into Chapter 11 protection in March along with two affiliates to deal with a $625 million debt load. The company has said the Chapter 11 case would help it proceed with the residential development.

The development’s original plans in the mid-1990s contemplated at least 730 residences with a golf course and spa. However, a series of lawsuits filed by preservationists and environmentalists succeeded in putting the brakes on the development in the previous decade.

So far, only the 18-hole golf course, designed by Jack Nicklaus, along with a clubhouse and other recreational facilities, have been completed.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

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