Four Magnolia companies filed for protection in U.S. Bankruptcy Court in Washoe County this month, claiming severe cash flow problems although the companies have yet to default on any payments.
Stephen R. Harris, an attorney with Belding, Harris & Petroni Ltd. of Reno, said the companies sought bankruptcy protection because one of them will not be able to make a payment to one of its secured creditors in the near future.
"They have a cash flow problem and don't have enough money to make (the payment)," Harris said.
Lizanne Stoever, Mark R. Combs, and other investors are members of MPB Equity Partners LLC, the group that developed office and retail properties carrying the "Magnolia" brand in the Reno area. Stoever is the majority owner.
Though a minority owner of MPB, Combs is its managing member and initiated the Chapter 11 protection for Magnolia Village LLC, Magnolia Double R I LLC, Magnolia South Meadows III LLC and South Meadows IV LLC on Sept. 8.
Stoever learned of the bankruptcy filing Sept. 11.
Secured creditors for the Double R property include First National Bank of Nevada, which is owed $5.9 million, and First Independent Bank, which is owed $4 million. Wachovia Securities is owed $5.2 million on loans secured by the South Meadows III and IV properties.
Unsecured creditors include management and insurance companies, property contractors and trash haulers. The largest unsecured creditor on all but Magnolia South Meadows IV LLC is Combs. Other outstanding claims include $7,500 in management fees, two claims of $5,363 for insurance, and $1,997 for building services. All the other claims listed in the bankruptcy filing were less.
Harris said the Magnolia companies' assets, which collectively are valued in excess of $45 million, more than exceed its liabilities.
"The purpose of the Chapter 11 filing is to liquidate the properties or reorganize with an infusion of cash," he said, adding that Combs has loaned the company several million dollars to keep accounts current.
"Some of the payments may be late in September but no defaults to my knowledge have been filed," Harris said.
He added, "These are highly desirable properties and we have multiple buyers interested in purchasing them subject to U.S. Bankruptcy Court approval."
Harris said it is easier to sell the buildings through a Chapter 11 process than it would be for the owners to borrow money they need for the short term so they can sell the buildings themselves.
Earlier this year, Combs and other investors charged in a lawsuit that Stoever, then president and chief operating officer of The Magnolia Companies, funneled more than $1 million to herself and business entities that she controlled. In court filings Stoever denied all the allegations.
A jury trial in that case is set for May 14.
In addition to her interests in MPB Equity Partners and Magnolia Commons LLC, Stoever holds a majority interest in at least four other Magnolia partnerships in Reno, including Magnolia Village. Stoever also owns Magnolia Design & Construction and Magnolia Operating Group.
A meeting of the creditors in bankruptcy court is set for Oct. 16.