Fulton Homes, creditors seek settlement

With its time in Chapter 11 bankruptcy approaching the two-year mark, Fulton Homes and its creditors will take one last shot at a settlement in U.S. Bankruptcy Court before the Tempe-based builder's reorganization effort escalates into a legal battle.

The specter of litigation hung over Judge George B. Nielsen Jr.'s Phoenix courtroom Thursday as attorneys for Fulton Homes and lead creditor Bank of America hammered out an Oct. 21 deadline for creditors to vote on the builder's fourth proposed reorganization plan.

BofA attorney Don Gaffney of Phoenix law firm Snell & Wilmer said that despite an honest effort by creditors to conclude the Chapter 11 reorganization agreeably, the coming vote's outcome was impossible to predict.

If the settlement effort fails, the process would shift from uneasy cooperation to all-out conflict, with the court ultimately deciding how or whether Fulton Homes would continue to operate while repaying its massive debts.

Fulton Homes' creditors, who also include JPMorgan Chase Bank, Compass Bank and Wachovia Bank, are seeking payment stemming from a $250 million unsecured line of credit extended during the housing boom.

Lead creditor BofA cut off the credit line in late 2008. The Charlotte, N.C.-based bank contends that Fulton Homes owes the bank group more than $163 million.

Debtor's attorney Sean Cork of Squire, Sanders & Dempsey in Phoenix reiterated concerns that the 20-month reorganization effort's slow pace posed a threat to Fulton Homes' financial recovery.

Another local company, Phoenix-based grocery chain Bashas' Inc., recently emerged from its Chapter 11 proceeding after a 13-month effort.

Nielsen approved the Fulton Homes vote deadline and a follow-up hearing on Oct. 28.

There are three possibilities: Creditors could approve Fulton Homes' reorganization plan as written, propose an amended version or reject the plan outright.

Nielsen asked both attorneys about their readiness to proceed with litigation but urged them not to go there.

"It would be a major disappointment," he said.

by J. Craig Anderson The Arizona Republic Sept. 16, 2010 05:41 PM


Fulton Homes, creditors seek settlement