Bankrupt PJ Finance Co. LLC is headed to a Nov. 7 disclosure statement hearing after submitting a plan that would restructure $475 million in debt with its largest secured creditor.

Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware will consider the Chicago real estate company's disclosure statement at the hearing, which includes a plan that would have PJ's current shareholders make a $10 million contribution that would partially fund creditor recoveries. The rest of the plan distributions would be funded through the debtor's operations.

Under the reorganization plan, PJ would restructure about $475 million with secured lender Credit Suisse Group.

Through the plan, the lender would receive a new senior secured note for the amount of its claim, with a maturity date of Dec. 31, 2019. The loan will accrue interest at a fixed 3.5% annual interest rate for the first three years; 3.75% during the fourth through sixth years; and 4% during the seventh through eighth years.

Torchlight Loan Services LLC is serving as special servicer for the Credit Suisse loan.

Originally, the debtor had taken out a $475 million loan from Column Financial Inc. on Nov. 9, 2006. But on May 1, 2007, Column sold the loan to Credit Suisse, which bought the debt to put it into a trust with several other loans.

Under the reorganization plan, administrative, unsecured priority and priority tax claims would be paid in full.

General unsecured creditors would receive a pro-rata share of cash in a fund established to pay this creditor class. General unsecured cure claims would be paid in full.

Equity holders would receive 100% of the interests in the reorganized debtor through the plan.

PJ and the official committee of unsecured creditors jointly submitted the disclosure statement and plan on Sept. 19.

Shannon signed an order Sept. 20 granting PJ interim cash collateral use for the fifth time in spite of Torchlight's objections.

In a motion filed May 18 by Torchlight, the servicer stated that the debtor had violated several of the terms of its cash collateral approval. Shannon had previously given PJ permission to tap cash on March 8, March 17, April 6 and June 2.

In its objection, Torchlight stated that the debtor had exceeded a 10% variation on line items in its budget and also failed to provide weekly expense reports in a timely fashion.

PJ responded on the same day, asserting that it had taken "remedial measures" to ensure that budget reports would be filed promptlyin future, according to court documents.

The outcome of a Sept. 21 final hearing on the use of the funds is unclear from court papers. Debtor counsel Michelle Marino of DLA Piper LLP declined to comment on the case, and counsel to Torchlight, Paul Heath of Richards Layton & Finger PA, couldn't be reached.

In an April 13 motion, Torchlight had also requested that PJ's bankruptcy case be dismissed or converted to a Chapter 7. Torchlight claimed that PJ's bankruptcy filing was in bad faith and not precipitated by any urgency.

The servicer said in court papers that the debtor wasn't in default of any loans and Torchlight hadn't exercised its rights to take possession of its collateral.

In court papers, Torchlight claimed that the debtor had tried to facilitate a $42 million investment from Gaia Real Estate Investments LLC and Kenneth Wooley, chairman of WestCorp Management Group One Inc., which manages the day-to-day operations of PJ's properties. The servicer said the relationship between the debtor and the investors is so "incestuously interconnected" that it calls into question the PJ's intentions.

Finally, Torchlight said that the debtor's case should be converted or dismissed because PJ has been unable to effectuate a reorganization plan throughout its bankruptcy.

Torchlight's request to have PJ's case dismissed or converted to a Chapter 7 filing was scheduled to be considered at a June 1 hearing, but the resolution of that motion is also unclear from court documents.

PJ blamed its March 7 bankruptcy filing on internal disagreements with previous equity holders and management, as well as the declining real estate market. In court papers, PJ also said it had trouble covering its daily operations with its cash flow, which contributed to its filing.

The debtor filed for Chapter 11 protection armed with an agreement with Gaia to provide $42 million in postpetition financing. Under the terms of the deal, Gaia would provide $41 million in funding and a debtor affiliate will provide another $1 million. The motion, however, was withdrawn on Sept. 27.

PJ owns, operates, leases and sells real estate. The debtor, along with six affiliates, owns 32 apartment communities in Arizona, Florida, Georgia, Tennessee and Texas with a total of 9,504 units, court papers said.

Debtor affiliates Alliance PJRT GP Inc., Alliance PJRT Ltd., Alliance PJWE GP LLC, Alliance PJWE Ltd., PJ Holding Co. LLC and PJ Holding Co. Manager LLC also filed for Chapter 11 protection on March 7. The cases are being jointly administered.

In its petition, the debtor listed less than $50,000 in assets and liabilities. Assets and liabilities of $100 million to $500 million are listed with its six affiliates.

Counsel to the creditors' committee, William Chipman of Landis Rath & Cobb LLC, could not be reached for comment.