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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowSeveral principals of Indianapolis-based Lauth Group Inc. and their spouses have offered to provide $15 million in financing to Lauth subsidiaries in bankruptcy.
The insiders say in court filings that they are offering the proposal because Lauth Investment Properties LLC doesn’t have enough hard assets to serve as a “borrowing base” for a more traditional loan.
If the bankruptcy court approves the unusual arrangement, the Lauth principals would earn 15-percent interest, get warrants to acquire up to 25 percent of the company’s remaining equity and go to the front of the line to be repaid. They also would be compensated for expenses and legal fees.
And even if another party comes forward to propose more favorable terms for so-called debtor-in-possession financing, the Lauth insiders would pay themselves a breakup fee of $500,000.
“The debtors believe that this offer, negotiated at arms’ length and in good faith, represents the only realistic source of financing at this time,” the company said in a court filing. “Nevertheless, given the insider nature of this proposed transaction, the debtors will continue to canvass the debt markets in an effort to locate potentially better offers.”
Attorneys for the creditors, including Chicago-based Inland American Real Estate Trust, objected to the proposed arrangement, particularly the breakup fee, during a hearing this morning in New Albany.
Inland is challenging Lauth’s May Chapter 11 bankruptcy filing because it claims a Lauth default put it in control of the company’s subsidiaries and about 50 Lauth-developed properties. Inland agreed in 2007 to invest up to $250 million in Lauth.
Inland also is suing Lauth principals Robert L. Lauth Jr., Michael S. Curless, Gregory Gurnik, Lawrence Palmer and Thomas Peck in a separate case that alleges fraud, conspiracy and racketeering.
The company accuses the Lauth executives of diverting more than $18 million of the Inland investment for unauthorized purposes and of secretly rewriting contracts to let themselves off the hook for personal guarantees of $310 million on dozens of now-struggling real estate projects.
Another lender, San Francisco-based Wells Fargo Bank, also has sued Lauth principals over attempts to move around assets and leave creditors holding the bag after the company’s failure.
Lauth has denied the allegations in both cases.
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