Kara homes may exit Chapter 11, but with some big changes:
Less than a year after its Chapter 11 bankruptcy filing, beleaguered Kara Homes is planning its second act. Under a new proposal, the homebuilder will exit bankruptcy protection and emerge as a dramatically different entity, without its founder and without the Kara name, and with only a small fraction of its current properties.
Kara’s revised reorganization plan calls for the ouster of founder Zudi Karagjozi. Assuming ownership of the company would be Maplewood Homebuilders LLC, a new enterprise made up of hedge fund Plainfield Specialty Holdings II Inc. and Lakewood developer Glen Fishman. Maplewood would put most of Kara’s properties on the auction block. Kara, which owned more than 30 developments in various stages of construction when it filed for bankruptcy last year, would be reduced to just 11 core developments.
Unsecured creditors will not be seeing a lot back under this arrangement, although they will fare better than they would under a plan proposed last April:
Plainfield, which lent Kara $7 million to help keep afloat during bankruptcy, would invest $10 million in equity in the company. Kara attorney David Bruck says part of the money would be used to pay unsecured creditors an initial dividend of $2.25 million, or nine cents for each dollar they are owed. These creditors would also get a cut of additional funds from the prosecution of claims and the sale of assets.
Even with the reorganization plan, it remains to be seen if Kara can survive in the long run:
Kara still faces hurdles ahead, including securing enough funds to sustain it over the long term. Gary Griffin, chairman and CEO of Renaissance Resource Group, a turnaround consultant in New Brunswick, calls Plainfield’s $10 million equity investment meager when compared with Kara’s debt. “There’s not a lot of money that they’re talking about,” says Griffin. Kara’s bankruptcy filing listed assets of $350 million and liabilities of $297 million.
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This one hits close to home Twist. Kara is based in my hometown and many people with down payments were left holding the bag on this one. Also the poor people who bought in early have incomplete developments sitting with clubhouses, pools, roads etc. not completed. Just bad news all around.