By Joseph Checkler Of DOW JONES DAILY BANKRUPTCY REVIEW A bankruptcy judge is ordering a trustee to take control of a stalled Las Vegas-area development, siding with a group of lenders who had been trying to force the project into Chapter 11 protection. Judge Bruce A. Markell of U.S. Bankruptcy Court in Las Vegas entered the order against development owner South Edge LLC after a four-session hearing that ended Thursday--a win for J.P. Morgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Credit Agricole (CRARY, ACA.FR). The consortium in December launched an involuntary bankruptcy petition to try to force South Edge's 2,000-acre "Inspirada" project in Henderson, Nev., into bankruptcy for what the lenders called "neglect," "self dealing" and "abuse." Los Angeles-based KB Home (KBH) owns nearly half of Inspirada and said in a regulatory filing that Markell's decision means the company "potentially became responsible to pay" hundreds of millions of dollars. Besides KB Home, affiliates of Toll Brothers Inc. (TOL) and Meritage Homes Corp. (MTH) could also be on the hook in the involuntary bankruptcy. In all, builders in the project could be forced to pay more than $300 million in losses. J.P. Morgan, Wells Fargo and Credit Agricole were three of the 39 lenders that pumped $585 million in loans into the company, before claiming that project insiders wrongfully put the brakes on the development. The project was initially dreamed up in 2003 by some of the nation's major home builders, according to court papers. The development was to incorporate 8,500 residences clustered in seven "villages," with a 300-acre town center that had retail, gaming and municipal offerings serving as the development's heart. Two middle schools, three elementary schools, fire and police stations and parks were also supposed to dot the development. In addition to the $585 million in loans, $102 million in public bonds were tapped to fund the construction. But according to J.P. Morgan, in the spring of 2008, the insiders "intentionally shut down the project" by defaulting on their loans, refusing to go after additional capital. The lender also accused the managers behind South Edge of wasting chances to "enhance the value of the project" and failing to collect monetary recoveries for the company, such as millions of dollars in municipal financing. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com --Robbie Whelan and Rachel Feintzeig contributed to this article.
