Timing/Calculation of Distributions
Question #4: The letter I received talked about a ‘waterfall distribution’. What is the waterfall?

The waterfall only applies if you invested in either the DBSI Short Term Development Fund or in the DBSI 2006 Land Opportunity Fund.

Investors in the Short Term Development Fund and/or in the 2006 Land Opportunity Fund had a choice of type of investment. Payments to such investors are determined by the type of investment each investor elected to purchase.

The private placement memorandum and the organizational documents for these investment funds provided that certain investments would receive payments ahead of others and that the ‘lower tier’ payments would not be made until those senior tiers were paid. This payment scheme is called a waterfall because the lower tiers are not paid until the upper tiers are paid in full, hence the payments behave like a waterfall. The Second Amended Joint Plan of Liquidation follows that waterfall with respect to the proceeds of real estate assets. Both your amount of allowed claim (which represents your beneficiary interest in the DBSI Real Estate Liquidating Trust) and the distributions from that trust follow the waterfall with respect to the proceeds of real estate assets.

Litigation proceeds do not follow the waterfall.  For further explanation of the treatment of the waterfall under the Second Amended Joint Plan of Liquidating, see page 15 of the Short Form N/B/F Disclosure Statement

For the Short Term Development Fund:

The Fund documents provide that payments are made in the following order with lower tiers paid only when upper tiers are paid in full:

  • Preferred members – 8%
  • Non-Preferred members – 4%
  • Preferred members – 2%
  • Preferred members – Return of original investment
  • Non-Preferred members – Return of original investment

The Interim Distributions made to date have satisfied the first two tiers of the Short Term Development Fund waterfall.  Remaining distributions allocated for the Short Term Development Fund investors will be distributed to Preferred members until they receive a return of their original investment.  Because recoveries are not projected to provide sufficient funds for a full return of the Preferred members’ original investments, future distributions to Non-Preferred members will be limited to litigation proceeds only.

For the 2006 Land Opportunity Fund:

The Fund documents provide that payments are made in the following order with lower tiers paid only when upper tiers are paid in full:

  • Preferred members – 12%
  • Non-Preferred members – 4%
  • Preferred members – 8%
  • Preferred members – Return of original investment
  • Non-Preferred members – Return of original investment

The Interim Distributions made to date have satisfied the first two tiers of the 2006 Land Opportunity Fund waterfall.  Remaining distributions allocated for the 2006 Land Opportunity Fund investors will be distributed to Preferred members until they receive a return of their original investment.  Because recoveries are not projected to provide sufficient funds for a full return of the Preferred members’ original investments, future distributions to Non-Preferred members will be limited to litigation proceeds only.

 

For both funds, the amount to be returned will not ever exceed the amounts listed in the beneficiary letter you received in or about February 2011. As set forth above, recoveries are not projected to provide sufficient funds for a full return of investors original investments.