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Since the Florida CDD collapse began, there have been over 120 housing projects which have gone into default with no clear indication of how this debacle will be resolved. A formula approach to resolution was likely given the common nature of the problem and more importantly, given that a vast amount of the bonds were held by large mutual fund families.  Oppenheimer Funds with involvement in over 40 CDDs to the tune of $1 billion was the likely candidate for leading the way and this appears to be bearing out.

On March 17, Wells Fargo Bank, the trustee for the Fontainbleau Lakes CDD, sent out a notice for a telephone conference to discuss a proposal to restructure the project.  The restructuring would entail terminating the sale and construction of new townhouse and midrise - small units in favor of single family homes.  The proposal also calls for the banks holding the mortgage on the property to provide financing for build out and buyer mortgage financing, although all this is only speculation since the banks’ role is subject to a no disclosure agreement.  It does make sense, however, since it would allow the banks to salvage a portion of their first mortgage claims which would be lost in a foreclosure.   

Bondholders will be asked to agree to a two year forbearance of tax assessments and therefore, interest payments in order to permit the implementation of the plan.  Since Oppenheimer owns 49.6% of the $28.4 million in bonds and three others own another 42.7% it is safe to say this proposal will be adopted. 


The above story appears in the April 2010 issue of the Distressed Debt Securities Newsletter.