Housing corp. revamps plan

CHINLE, Jan. 10, 2008

Fort Defiance Housing Corporation may continue to operate as one of the largest low-income housing providers on the Navajo Reservation if its creditors approve a restructuring plan proposed by its bankruptcy trustee.

But it will have a new name, a new board of directors and new bylaws that, hopefully, will keep the nonprofit from being feasted upon by unscrupulous subcontractors as the trustee alleges happened before it declared bankruptcy in 2005.

Court-appointed trustee Brenda Moody Whinery last month filed a restructuring plan with U.S. Bankruptcy Court in Phoenix that she says will get all 14 FDHC projects to cash-flow, begin to pay off dozens of subcontractors and creditors, and allow the 90 long-vacant units of Chilchinbeto Estates to be completed and occupied.

The plan would also honor lease-purchase agreements held by tenants in FDHC's two Shiprock projects, and settle a variety of claims by lending institutions and tribal agencies.

In her disclosure statement to the court dated Dec. 20, Whinery states she has already renegotiated loans, raised rents and reinstated lapsed government subsidy agreements, putting FDHC well on the road to recovery.

The Navajo Housing Authority, which funneled some $70 million in federal grants to FDHC and sued the nonprofit for breach of contract in 2005, is now on board with the plan and has agreed to help FDHC finish the Chilchinbeto project, according to Whinery.

NHA spokesman Rick Abasta could not be reached for comment.

And financial records that were is such disarray that auditors could not perform an audit in 2003 and 2004 have been replaced with a computerized accounting system with separate accounts for each project.

Critical maintenance issues at some of the housing projects have already been addressed and the others will be confronted as funds become available, according to the statement.

Under the plan, 75 percent of FDHC's net revenues (after it pays operating expenses and secured debt) will be used to pay off its creditors until the debt disappears. The other 25 percent will go into a general operating account.

A new chief financial officer - Dana Denney - has already been hired. After the reorganization, Whinery will step down as trustee of the company and be in charge of the account used to pay back the creditors.

Under the plan, the creditors will have to settle for the principal on what they're owed - no late fees or interest will be allowed. But it's a good deal more than they would have gotten, probably, if FDHC had chosen a Chapter 7 rather than Chapter 11 bankruptcy. Chapter 7 would have allowed it to default on a portion of its debt after liquidating its assets.

A $1 million loan from the U.S. Department of Agriculture will be used to pay back the subcontractors for Chilchinbeto Estates, several of whom say they received no payment for their work after the contractor, Lodgebuilder Inc., abandoned the project in 2004 without building access roads, completing the sewer system or providing a potable water source. Lodgebuilder owner William Aubrey said in court those items were not part of Lodgebuilder's contract.

Whinery writes in her statement she will continue to pursue two adversarial suits against the individuals and companies she believes bankrupted FDHC by misappropriating federal construction grants, including Lodgebuilder and its owners, Aubrey and Brenda Todd of Mesquite, Nev.

The first of those suits was scheduled for trial this week, but that date was vacated after Judge Redfield T. Baum ruled the parties had not met and conferred before the trial in compliance with local rules. The new trial date is April 28.

No date has been set for the second suit, which names, among many others, former Navajo Nation Chairman Peter MacDonald Sr. The suit alleges MacDonald accepted $45,000 from Lodgebuilder, however, MacDonald's lawyers say it was a fee for legitimate services.

Between the two suits, Whinery hopes to recover $23 million she says is owed to FDHC, along with punitive damages. All the defendants have denied they owe the company anything.

The restructuring plan must be approved by two-thirds of FDHC's creditors in order to take effect. This is the second plan Whinery has submitted, the first having been protested by some of the creditors.