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Jeffer, Mangels, Butler & Marmaro partner Robert Kaplan has been working with bankruptcy law since 1977, but he’d never come across a deal like the recent $100 million loan he recently helped close. “I’ve never heard of a loan to a Chapter 7 debtor, and all the people we’ve spoken to have never heard of this being done,” he said. It all started with Halekua Development Corp., a Hawaiian company that had planned to turn 161 acres of land outside of Honolulu into a 2,000-home planned community. But the company fell short of money, its loans went into default, and it owed millions to creditors. It tried to declare Chapter 11 bankruptcy, which requires that the company have a more or less viable business operation. Without a plan for that, the company was forced to declare Chapter 7, a filing reserved for companies that can no longer operate and must sell their assets. “Essentially, Halekua had given up and converted from 11 to 7,” Kaplan said. At this point, a third party normally would enter to buy the assets, signifying the end of the road for Halekua. But in a surprising twist, Kaplan’s client, CMR Mortgage Fund, and Canpartners Realty Holding offered the beleaguered company a $100 million loan to buy back its own real estate. “Usually at this point, no lender would give it the time of day � it had already failed,” he said. “It took a very entrepreneurial spin to convince the lenders that it would be able to start up operations again.” In this case, the lenders thought Halekua, with its extensive network of relationships in Hawaii, was in the best position to restart the operations. The loan will be enough to pay off its creditors and move forward with the housing plan. “A lot of people laughed, and there was a fair amount of skepticism: You’re lending to a company that has shut its doors,” Kaplan said. “Usually when a company reaches that point, most people aren’t going to roll the dice. That’s the exciting and interesting aspect of this.” Along with the typical loan legal work, there was a fair amount of environmental due diligence to ensure there wouldn’t be problems once the company started building � especially since the property was downhill from old pineapple fields. While the business decisions were interesting to observe, Kaplan points out that the decision to go forward on the loans was strictly that of the lenders, not the lawyers. “The business acumen is attributed to the lenders � the lawyers just implement it,” he said. “And do hundreds of documents.” Along with Kaplan, a San Francisco partner, the Jeffer, Mangels team included San Francisco partners Dennis White and Nicolas De Lancie. Sidley Austin represented Canpartners Realty Holding Company IV LLC, which is the senior co-lender under the loan and an affiliate of Canyon Capital Realty Advisors. Los Angeles partners Bruce Fraser, Brian Flavell and Judith Praitis as well as L.A. associate Michael Bryant worked on the transaction. Lisa Fenning, a partner in Dewey Ballantine’s L.A. office, worked on bankruptcy matters for Canyon. Jonathan Durrett of Stubenberg & Durrett of Honolulu represented Halekua Development Corp.

Kellie Schmitt

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