Financing for Lake Las Vegas OK’d

Bankruptcy Judge Linda Riegle said she will sign an order today approving $127 million in post-bankruptcy financing for Lake Las Vegas.

At a hearing Monday, assistant U.S. trustee August Landis objected that $49 million would pay some creditors for debts before the bankruptcy filing.

Riegle said she usually wouldn't approve an order that gives pre-bankruptcy creditors some of the post-bankruptcy financing.

"I was perfectly willing to just say no," Riegle said. The judge said she was swayed by a recommendation from the committee of unsecured creditors.

Attorney Mark Shinderman, who represents that committee, said it was the only financing available to keep the Lake Las Vegas community operating, given the real estate bust.

"It may be the only source of recovery to the (Lake Las Vegas) debtors," Shinderman told the judge. "We wanted to live until another day."

Developers of Lake Las Vegas declared bankruptcy July 17. As bankruptcy judge, Riegle has authority to approve payment to creditors from the funds that Lake Las Vegas has on hand.

A small portion of the proceeds will be used to repair 7-foot-diameter drainage pipes that carry runoff underneath the lake and could rupture and empty the lake.

"It would have a catastrophic negative impact on the entire resort," said Frederick Chin, chief executive officer of Lake Las Vegas.

"In the worst-case scenario, the breach would be just like the bottom of the bathtub when you pull out the drain plug," Lake Las Vegas attorney David Stern said. "It's not something that's necessarily going to fail tomorrow, but it might."

Steve Weber, who obtained his doctoral dissertation on Lake Las Vegas, had concluded that draining the lake would destroy "the biosphere at the lake," Stern said.

"It would be smelly, and it would be mosquito-ridden," Stern said.

The lake is important to the identity of the development and brings added value to homes and resort hotels, Chin said. Boaters use the lake, and home buyers are charged a premium for sites with views of the lake, Chin said.

One of the two pipes has been closed for seven years, but Chin said that both pipes should be repaired and usable.

Lake Las Vegas agreed to pay a group organized by Credit Suisse 14.9 percent interest for 10 months or more, although the rate is adjustable. The names of the lenders weren't disclosed, but Thomas Patterson, an attorney for Lake Las Vegas, said the list includes some of those who loaned money before the bankruptcy.

The pre-bankruptcy lenders include Goldman Sachs Asset Management, Lehman Bros., Merrill Lynch Asset Management, BlackRock Financial Management, Guggenheim, Hartford Insurance and Highland Capital Management.

The budget includes $3 million for repair to the conduit pipe; $10.4 million to subsidize the Master Property Ownership Association and to replenish reserves; $1.6 million for golf course operations; $4.8 million for land development activities; and $25 million for overhead and ongoing operations, including $5.2 million for a local improvement district assessment.

The order won't be final until 10 days pass to allow for an appeal, but the judge authorized Lake Las Vegas to draw down $1 million for interim expenses including a $300,000 payroll. The debtor has less than $300,000 on hand, Stern said.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.