DENVER -- A bankruptcy judge has approved a workout plan for $46.6 million in debt issued by Castle Pines North Metropolitan District in Colorado, ending four years of struggle that cost bondholders more than $2 million in legal fees.

Last week, U.S. bankruptcy judge Roland Brumbaugh approved a reorganization plan for Castle Pines North, which defaulted on $35 million worth of municipal bonds four years ago. Since the default, there have been two trips to bankruptcy court, a civil trial, and sporadic and contentious negotiations between bondholders and the district.

Under the plan, the approximately 1,200 bondholders will receive shares of the $1.2 million in reserve funds that weren't spent on lawyers and advisers and will receive exchange bonds with lower yields and longer maturities. The 450 home owners in the district, a development south of Denver, will see their taxes rise, while future home buyers will pay higher utility hook-up fees. The payouts are to begin immediately with a June interest payment.

Home owners in the metropolitan district are now free from the threat of the huge tax payments that would have been needed to satisfy the bond debt. According to an estimate a year ago, accelerating the debt payments would have presented the owner of a $190,000 home with a $60,000 tax bill. Plummeting values stemming from the dispute have lowered the calculations to satisfy the debt to $28,000 the first year and $8,000 thereafter.

In addition, two developers that own land in the district may now start building homes, which will lighten the load on existing property owners and provide more security to bondholders.

"We are satisfied with the resolution and are anxious for development to resume so the future of the community is assured," said Carol Grudis, chairman of the creditors committee.

Voting in May, bondholders approved the workout plan, 867 to 15, and residents approved it 719 to 2.

"It's been a long, difficult year, but the vote has really shown we've developed a workable plan," said John Ewing, chairman of the district's board of directors.

During the four-year battle, Ewing and fellow board members battled with the trustee, the former Central Bank of Denver, over bond repayment. The board eventually lost its battle in state court when a judge ruled that the bonds must be repaid in full.

Insiders point to the efforts of two key players who helped turn to tide in negotiations last summer. Tom Anderson, a trial attorney by trade and resident in the district, spearheaded a community effort and Chris Fellows, an executive with Writer Corp., one of the two developers of the project, represented the development side of the workout triangle. Both men give much credit to members of the community who worked on task forces.

Writer Corp., unlike the now defunct real estate development arm of U S West Corp., did not abandon the project. It agreed to tap fee agreements that would increase the district's revenue even if development did not occur. Fellows acted as a go-between the district and home owners.

"The whole thing would have gone down. Someone had to step up and do it," Fellows said. "It was real important to [Writer Corp.]. Castle Pines North was a big part of the assets of the company."

The most difficult task, Fellows said, was to overcome the enmity built up between the bondholders, their trustee, and the district board. In an interview in March, Anderson related the same story.

"There was a lot of ill will. [One], we had to get the mindset of the people in the community to change and two, to start a dialogue with the bondholders. Somewhere along there, I don't know if it got personalized or what," Fellows said.

On Monday, Writer began digging the first foundation for a home, one of about 2,000 it hopes to build over the next 15 years. The company plans to construct 50 homes this year and an average of more than 100 a year after that. Fellows said the added tax burden home owners will bear is not significant enough to deter sales in Denver's heated housing market.

Bondholders will receive new Series 1994 bonds at an average 8.55% yield and a share of the $1.2 million of reserve funds immediately on a pro-rata basis. The maturity on the bonds extends out to 40 years. The original 1986 bonds matured in 30 years and yielded between 8% and 12%.

Home owners will see their mill levies limited to 41 mills for the next decade, then rise if development does not continue at the projected pace. Under the plan, the average home owner will contribute $1,000 a year toward debt service, in addition to school and county taxes.

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