AGENDA SPECIAL MEETING BOARD OF DIRECTORS RANCHO CALIFORNIA WATER DISTRICT Board Room Rancho California Water District 42135 Winchester Road Temecula, California Tuesday, July 8, 2014 8:30 a.m. INTRODUCTION ROLL CALL PLEDGE OF ALLEGIANCE APPROVAL OF AGENDA PUBLIC COMMENT Any person may address the Board at this time upon any subject not identified on this Agenda but within the jurisdiction of the Rancho California Water District. Please note that for items not listed on the agenda, the Brown Act imposes limitations on what the Board may do at this time. The Board may not take action on the item at this meeting. As to matters on the Agenda, persons will be given an opportunity to address the Board when the matter is considered. If you wish to speak during public comment, please fill out a "Speaker Request Form" and give it to the Board Secretary. When the Board President calls your name, please immediately step to the podium and begin by giving your name and address for the record. Each speaker will be given three (3) minutes to address the Board 1. CONSIDER APPROVAL OF AN AGREEMENT AND ESCROW INSTRUCTIONS BETWEEN RANCHO CALIFORNIA WATER DISTRICT AND CAMBRIDGE FINANCIAL OF CALIFORNIA, LLC, BERESFORD DEVELOPMENT, LLC, AND XD CONEJO NOTES, LLC, FOR THE SALE AND PURCHASE OF VALIDATED DEBT IN THE PENDING BANKRUPTCY PROCEEDING IN RE VAIL LAKE RANCHO CALIFORNIA, LLC, AND THE ANTICIPATED PURCHASE OF THE FOLLOWING REAL PROPERTIES AT A COURT ORDERED BANKRUPTCY SALE HELD PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE: (1) ASSESSOR PARCEL NOS. 927-320-062, 927-320-063, 927-320-079, 927-320- 080, 927-320-081, 927-320-083, 927-320-084, 927-320-085, 927-320-086, 927-320-087, 927-320-088, 927-320-089, 927-380-019, 927-380-020, 927-380-021, 927-680-010, 927-680-005, 927-380-023, 927-680-001, 927-680-002, 927-680- 004, 927-680-011, AND 927-680-012 ( VAIL PROPERTIES ); AND (2) ASSESSOR PARCEL NOS. 581-070-013, 581-070-015, 581-070-016, 581-120- 005, 581-150-013, 581-150-015, 581-150-016, 581-150-017, 917-050-003, AND 917-050-007 ( SUNDANCE PROPERTIES )
Board of Directors Special Meeting Agenda July 8, 2014 Page 2 2. CLOSED SESSION A. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (Per Government Code 54956.9 (a)) In re Vail Lake Rancho California, LLC, Bankruptcy Court, Southern District of CA, Case No. 12-16684-LA11 B. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (Per Government Code 54956.9 (a)) In re Vail Lake USA US Bankruptcy Court, Southern District of CA Case No. 13-05927-LA11 C. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (Per Government Code 54956.9 (a)) In re Vail Lake Village & Resort US Bankruptcy Court, Southern District of CA Case No. 13-05930-LA11 3. ADJOURNMENT Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities, as required by Section 202 of the Americans with Disabilities Act of 1990. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the District Secretary at (951) 296-6900 at least 48 hours before the meeting, if possible. Any writings or documents provided to a majority of the members of the Board of Directors regarding any item on this agenda will be made available for public inspection at the District s Administrative Headquarters Building located at 42135 Winchester Road, Temecula, California, during normal business hours.
BOARD ACTION BOARD OF DIRECTORS July 8, 2014 Page 1 of 79 ITEM 1: CONSIDER APPROVAL OF AN AGREEMENT AND ESCROW INSTRUCTIONS BETWEEN RANCHO CALIFORNIA WATER DISTRICT AND CAMBRIDGE FINANCIAL OF CALIFORNIA, LLC, BERESFORD DEVELOPMENT, LLC, AND XD CONEJO NOTES, LLC, FOR THE SALE AND PURCHASE OF VALIDATED DEBT IN CONNECTION WITH THE PENDING BANKRUPTCY PROCEEDING IN RE VAIL LAKE RANCHO CALIFORNIA, LLC, AND THE ANTICIPATED PURCHASE OF THE FOLLOWING REAL PROPERTIES AT A COURT ORDERED BANKRUPTCY SALE HELD PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE: (1) ASSESSOR PARCEL NOS. 927-320-062, 927-320-063, 927-320-079, 927-320-080, 927-320-081, 927-320-083, 927-320-084, 927-320-085, 927-320-086, 927-320- 087, 927-320-088, 927-320-089, 927-380-019, 927-380-020, 927-380-021, 927-680-010, 927-680-005, 927-380-023, 927-680-001, 927-680-002, 927-680-004, 927-680-011, AND 927-680-012 ( VAIL PROPERTIES ); AND (2) ASSESSOR PARCEL NOS. 581-070-013, 581-070-015, 581-070-016, 581-120-005, 581-150-013, 581-150-015, 581-150-016, 581-150-017, 917-050- 003, AND 917-050-007 ( SUNDANCE PROPERTIES ) RESPONSIBLE/LEAD STAFF MEMBER: Assistant General Manager, Richard Williamson RECOMMENDATION: Staff Requests the Board of Directors (Board) approve and authorize the General Manager to execute an Agreement and Escrow Instructions between Rancho California Water District and Cambridge Financial of California, LLC, Beresford Development, LLC, and XD Conejo Notes, LLC, for the sale and purchase of Validated Debt in connection with the pending bankruptcy proceeding In re Vail Lake Rancho California, LLC, and the anticipated purchase of the Vail Properties and the Sundance Properties at a court ordered bankruptcy sale held pursuant to Section 363 of the Bankruptcy Code. DISCUSSION: On or about December 10, 2010, Rancho California Water District ( District ) entered into an Option Agreement with Cambridge Financial of California, LLC ( Cambridge ) to acquire certain properties in the Vail Lake area if and when Cambridge acquired title to the Vail Lake Properties. The real property subject to the Option Agreement consisted of the Vail Properties and is owned by Vail Lake Rancho
Board of Directors Special Meeting July 8, 2014 Item 1 Page 2 of 79 California, LLC ( VLRC ); Vail Lake USA, LLC ( Vail Lake USA ); Vail Lake Village & Resort, LLC ( VLVR ); Vail Lake Groves, LLC ( Groves ); and/or Agua Tibia Ranch, LLC ( Agua Tibia );. The Option Agreement and its amendments expired July 1, 2014. VLRC, Vail Lake USA, VLVR, Groves, Agua Tibia, and Outdoor Recreational Management, LLC ( ORM ) (collectively referred to as the Vail Entities ) filed six different and separate bankruptcy proceeding 1 in the United States Bankruptcy Court for the Southern District of California ("Bankruptcy Court"). The proceedings are now being jointly administered under the joint administration caption of In re Vail Lake Rancho California, LLC ( Vail Bankruptcy Proceeding ). The Vail Entities have or claim an interest in the Vail Properties and the Sundance Properties (jointly referred to as the Subject Properties ). The Vail Properties are made up of Assessor Parcel Nos. 927-320-062, 927-320-063, 927-320- 079, 927-320-080, 927-320-081, 927-320-083, 927-320-084, 927-320-085, 927-320- 086, 927-320-087, 927-320-088, 927-320-089, 927-380-019, 927-380-020, 927-380- 021, 927-680-010, 927-680-005, 927-380-023, 927-680-001, 927-680-002, 927-680- 004, 927-680-011, and 927-680-012 and are located within the boundaries of the District. The Sundance Properties are made up of Assessor Parcel Nos. 581-070-013, 581-070-015, 581-070-016, 581-120-005, 581-150-013, 581-150-015, 581-150-016, 581-150-017, 917-050-003, and 917-050-007 and are located outside the boundaries of the District. A map showing the general location of the Subject properties is attached hereto as Exhibit B. Cambridge, XD Conejo, and Beresford Development (collectively referred to as the Sellers ) are creditors in the Vail Bankruptcy Proceeding and hold notes, liens and other encumbrances secured, in part, by the Vail Lake Properties and the Sundance Properties ( Loans/Liens ). 2 Sellers have an opportunity to enter into a comprehensive 1 Vail Lake Rancho California, LLC, a California limited liability company (Case No. 12-16684); Vail Lake USA, LLC, a California limited liability company (Case No. 13-05927); Vail Lake Village & Resort, LLC, a California limited liability company (Case No. 13-05930); Vail Lake Groves, LLC, a California limited liability company(case No. 13-05927); Agua Tibia Ranch, LLC, a Delaware limited liability company(case No. 13-05932); and Outdoor Recreational Management, LLC, a California limited liability company(case No. 13-05944). 2 Cambridge is the current holder of six secured promissory notes and other loan documents ("Cambridge Secured Loans"), XD Conejo is the current holder of two secured promissory notes and other loan documents ("XD Secured Notes") and a judgment and abstract liens ("XD Judgment and Liens"); and Beresford Development is the current holder of a judgment and abstract liens ("Beresford Development Judgment and Liens").
Board of Directors Special Meeting July 8, 2014 Item 1 Page 3 of 79 settlement in the Bankruptcy Case that would, among other things, include validation of the Loans/Liens in the aggregate amount of not less than $72 million dollars ( Validated Debt ), and provide for court ordered sale of the Subject Property pursuant Section 363 of the Bankruptcy Code ("Bankruptcy Sale"). 3 Sellers have approached the District about entering into an agreement pursuant to which the District would purchase the Validated Debt and either acquire the Subject Properties through the Bankruptcy Sale if Seller is the successful bidder, or receive the difference between the Purchase Price and the amount of the Validated Debt if a third party is the successful bidder. Sellers are willing to sell the Validated Loans to the District for Forty-Nine Million Seven Hundred Seventy Thousand and No/100 Dollars ($49,770,000.00) ( Purchase Price ). Pursuant to Sellers settlement with the Bankruptcy Estate, the Estate will file motions seeking to validate the Loans/Liens and to obtain an order approving the Bankruptcy Sale. In general, notice and the motions need to be filed and served on all interested parties. A hearing on the motions will be set at least 21 days after the notice and motions are served. Creditors and interested parties will have 14 days after service of the notice and motion to respond/oppose. After the order is entered, parties have 14 days to file a notice of appeal. If a stay of the order is not sought, the sale would proceed. If a stay is obtained, the deal will terminate. If the ordered sale proceeds, both Sellers and the District would retain the right to independently bid at the Bankruptcy Sale. At the Bankruptcy Sale, Sellers would be the stalking horse bidder with a credit bid up to the amount of the Validated Debt. In the event Sellers are the high bidder, the District would close the deal by purchasing the Validated Debt and acquiring the Subject Properties. In the event Sellers are outbid at the Bankruptcy Sale, the District would have the option to either: (a) terminate the Agreement, or (b) purchase the Validated Debt and receive $72 Million from the proceeds of the Bankruptcy Sale. The ordered sale would include a finding of good faith which would insulate the purchaser from challenges by third parties. 3 Section 363 generally permits the Bankruptcy Court to authorize a sale free of "any interest" that an entity has in property of the Estate. 363 Sale procedures are designed to find the highest and best price and typically consist of the following steps. The seller initially selects a "stalking horse" bid. A stalking horse bidder is a potential buyer with whom the Estate has negotiated a purchase agreement, conditioned on the results of an auction soliciting additional bids and approval by the Bankruptcy Court.
Board of Directors Special Meeting July 8, 2014 Item 1 Page 4 of 79 If Seller is the high bidder at the Bankruptcy Sale, the transaction would proceed through simultaneous closings of two escrows. Escrows will be established with Chicago Title to handle the transactions. One escrow will be established to handle the transfer of the Validated Debt (Validated Debt Escrow ) from Sellers to the District, and another to handle the transfer of the Subject Properties following the Bankruptcy Sale. The Vail Properties will be acquired free and clear of all interest, and Sellers will pay all ad valorem real property taxes owing on the Vail Properties. The Sundance Properties will be sold subject to senior lien and outstanding ad valorem taxes. As part of the Agreement, the District has/will obtain a title commitment from Chicago Title Insurance Company ("Title Insurer") insuring title to the Subject Properties based upon the anticipated Bankruptcy Sale ("Title Commitment"). The Title Commitment will insure title to the Vail Properties and the Sundance Properties subject to the identified exceptions. The District s approval of the Agreement is not subject to environmental review under the California Environmental Quality Act ( CEQA ), Public Resources Code section 21000 et seq. Acquisition of the Property, in and of itself, would not result in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment and therefore is not considered a project subject to CEQA review. (Public Resources Code, 21065; State CEQA Guidelines, 15378.) Further, acquisition of the Property, in and of itself, does not have the potential to cause a significant effect on the environment pursuant to State CEQA Guidelines section 15061, subsection (b)(3). Any future activities on the Property would be subject to environmental review, as required under CEQA, prior to approval to allow for meaningful information for environmental assessment at that time and compliance with any other applicable environmental laws. Approval of the Agreement would not preclude RCWD from considering any mitigation measures or alternatives to any future activities on the Property pursuant to CEQA. Staff will provide the Board with an updated agreement at their July 8, 2014 special meeting.
Board of Directors Special Meeting July 8, 2014 Item 1 Page 5 of 79 ALTERNATIVES: Decline to approve the Agreement. FISCAL ANALYSIS: The purchase price for the acquisition is $49.77 Million. There will be ongoing operating revenue and expenses related to the acquisition should the sale occur. Staff is in the process of preparing interim operating budgets. ENVIRONMENTAL REQUIREMENTS: 15378) Notice of Exemption (Public Resources Code 21065; State CEQA Guidelines EXHIBITS/ATTACHMENTS: Agreement & Escrow Instructions between Rancho California Water District and Cambridge Financial of California, LLC, Beresford Development, LLC, and XD Conejo Notes, LLC Map of Properties
Vail Lake Sundance Properties (495 Acres) Parcel E (350 Acres) Parcel F (95 Acres) South 79 Properties (471 Acres) Boundary of Option Properties RCWD Service Area Location Map VDC Recharge Ponds
BOARD ACTION BOARD OF DIRECTORS July 8, 2014 Page 1 of 1 ITEM 2: CLOSED SESSION A. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (PER GOVERNMENT CODE 54956.9 (A)) IN RE VAIL LAKE RANCHO CALIFORNIA, LLC, BANKRUPTCY COURT, SOUTHERN DISTRICT OF CA, CASE NO. 12-16684- LA11 B. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (PER GOVERNMENT CODE 54956.9 (A)) IN RE VAIL LAKE USA US BANKRUPTCY COURT, SOUTHERN DISTRICT OF CA CASE NO. 13-05927-LA11 C. CONFERENCE WITH LEGAL COUNSEL PENDING LITIGATION (PER GOVERNMENT CODE 54956.9 (A)) IN RE VAIL LAKE VILLAGE & RESORT US BANKRUPTCY COURT, SOUTHERN DISTRICT OF CA CASE NO. 13-05930- LA11 RESPONSIBLE/LEAD STAFF MEMBER: General Counsel, James B. Gilpin RECOMMENDATION: Staff recommends the Board of Directors (Board) adjourn to closed session to discuss the above items. DISCUSSION: Staff requests the Board consider the aforementioned items in closed session. Verbal reports will be provided at that time. ALTERNATIVES: Not applicable FISCAL ANALYSIS: Not applicable ENVIRONMENTAL REQUIREMENTS: Not applicable EXHIBITS/ATTACHMENTS: None