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Wildwood debt restructuring stalls

The long-hoped-for restructuring of defaulted bonds issued nearly two decades ago by the bankrupt Wildwood Estates development has been put on hold because of volatile credit and real estate markets.

“We just felt it was the prudent thing to do,” said Michael Castelli, the lawyer hired by the county 10 years ago to find a solution to the default.

In March 2006, when Castelli and county officials announced the restructuring, the news made headlines in national investment publications. Nevada County was seen favorably for making good on what had been a bad debt, Castelli said at the time.



But the failure of the latest bond won’t hurt the county, because it’s the right thing to do in a market of falling real estate prices and slow sales, Castelli said. “You can’t fight the market,” he added.

The deal also had paved the way for the resurrection of the development as Wildwood Ridge II, a mixed-income subdivision uphill from Lake Wildwood that would have preserved open space and offered affordable houses for middle-income buyers.




Outstanding debt on the old bonds, first issued to build infrastructure on the property, stands at more than $4.82 million. The delinquent interest, not paid since 1997, has climbed to $2.7 million. The county is the governing body of the special bonds, but is not obligated to pay the delinquent interest.

On Sept. 25, it appeared as though the dark cloud had lifted when county supervisors approved a resolution that would have allowed the sale of $9 million in refunding bonds by December, redeemable by March 1.

Optimism soon dimmed when August figures on the nation’s credit market rolled in, revealing a growing crisis that was affecting global markets. The underwriter for the Wildwood deal, the Southern California municipal bond giant Stone and Youngberg, decided to hold off on the sale of the new bonds and allow time for the market to turn around.

The company first invested in the project 10 years ago, buying the property for $10; the property’s value at the time was $6.5 million less than its debt, but the increase in land prices then appeared to make the deal viable.

Then the real estate market slowed, and a collapse in the sub-prime loan market tightened credit across the board.

“Rather than try to push it, it made sense to take a pause,” said Brian Masterman, president of Stone and Youngberg.

Bond owners were notified through national repositories on Oct. 31 that the refunding bonds would not be released as first announced.

“It has been determined that the continuing deterioration in the residential real estate market, along with disruptions and readjustments in the credit markets, makes the proposed transaction infeasible at this time,” the letter to about 100 bondholders said.

The “pause” could take years, Masterman said.

That delay will push off development of the property. Between 2001 and 2003, Wildwood Resolutions, a subsidiary of Stone and Youngberg, built 100 houses in the first phase of the project, renamed Wildwood Ridge.

When real estate slowed, the company held off developing the remaining phases of the project. When real estate begins moving again, a special tax would be applied to 364 lots in the remaining three phases to pay the debt of the refunding bonds, Castelli said.

Investors say they won’t abandon the property, even though the prospects of reaping a profit are slim.

“We’ve made a large investment of time, energy and money. We’re not going away,” Masterman said.

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To contact Staff Writer Laura Brown, e-mail lbrown@theunion.com or call 477-4231.


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