KGI Completes $191M Real Estate Restructuring
Largest Personal Bankruptcy Ever in Sonoma County

Clem Carinalli, a major property owner in Sonoma County, California, had amassed a portfolio of more than 230 properties with a reported value of $195 million over a period of more than 30 years, and was considered a pillar of the Santa Rosa community.

All of that changed dramatically when he was forced by creditors to file personal Chapter 11 bankruptcy in September 2009, with liabilities of $191 million including $55 million of unsecured debt.

The Challenge
The unsecured creditor group, which consisted primarily of individuals who had invested with Mr. Carinalli over the years, hired KGI as financial advisor to provide an independent assessment of the proposed bankruptcy plan, to represent their interests, and to obtain the maximum possible recovery.

Many of these investors were retirees who had much of their wealth invested with Carinalli, and the community was outraged.

There was substantial concern about the likelihood of any recovery, as Carinalli's properties consisted primarily of raw land, most of which was illiquid and had no development potential for years to come.

Mr. Carinalli also owned a hodgepodge of rental homes, small commercial properties and vineyards. Most of his real estate holdings were concentrated in Sonoma County, making a quick liquidation very difficult, if not impossible, except at a massive discount that would have potentially wiped-out the unsecured creditors.

The Solution
From the outset, Mr. Carinalli was very sympathetic and responsive to the creditors' concerns, and he was cooperative. KGI worked closely with the creditors' bankruptcy counsel (Pachulski Stang Ziehl & Jones), Mr. Carinalli, and his bankruptcy counsel to develop an orderly liquidation plan designed to obtain the maximum recovery for his creditors.

This substantial effort involved capturing huge volumes of data and information, conducting evaluations of all 230+ of Mr. Carinalli's properties, preparing detailed financial projection models, and advising the creditors on Carinalli's proposals to sell assets, deed properties back and/or to enter into settlements with secured creditors both during the pendency of the case and post-confirmation.

KGI also assisted and advised in organizing a 5 year liquidating trust which allowed creditor beneficiaries to self-select their preferred plan treatment – one offering a shorter term (but lower) recovery, and one offering a longer term (but higher) potential recovery.

J Maddox

KGI also provided input on a wide variety of plan confirmation issues, including the "cram-down" interest rates proposed for creditors who had not voted in support of the plan, and the appointment of an independent liquidating trustee to manage the Carinalli estate after confirmation of the liquidation plan. Through the team's joint efforts, a liquidating plan of reorganization was confirmed in December 2010 that offers the creditors a potential recovery of 56% of their investment over time, when they were facing the prospect of a potential 100% loss.

KGI remains involved as an asset disposition advisor to the liquidating trustee, because of our intimate understanding of Mr. Carinalli's assets.

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