By Derek Price

Editor

A federal judge last week ordered that Bon Secour Village, a $500 million coastal development once planned by Cullman brothers Josh and Eddie Canaday, be auctioned off to pay debt the developers owe to Wachovia Bank.

According to the order, which was issued by U.S. District Judge Kristi K. DuBose on Sept. 24, the 880-acre property will be sold by the end of the year to pay more than $20 million owed to Wachovia, the development’s largest creditor.

Originally designed to be a “town within a town” with “parks, residential areas, shops, restaurants and courtyards,” the development has become a legal and financial mess. Three of its five developers — the Canaday brothers and Michael M. Knight of Destin, Fla. — have filed Chapter 11 bankruptcies with debts listed in the tens of millions of dollars.

“From a financial perspective, it’s been the hardest thing anybody could ever endure,” Eddie Canaday said Wednesday afternoon. He described how a perfect storm of market conditions combined to cause the development’s failure.

“It started with hurricanes that hit the area, followed by an insurance crisis the drove our costs way up,” he said. “But the biggest problem that developed on the heels of that was the subprime mortgage collapse in July of ‘07 and the resulting credit crisis.”

Before the financial crisis, Eddie Canaday said his companies had assets around $300 million in value with around $200 million in debt. But in the wake of the coastal real estate collapse, he saw that value fall drastically.

“Through the storms and insurance cost and subprime collapse, those $300 million in assets suffered a devaluation of anywhere between 40 and 60 percent depending on the nature and location of the asset. So $300 million in assets became $150 million to $160 million in a very short period of time with debt of just over $200 million,” he said.

While the resulting bankruptcy has hit large national banks the hardest in terms of raw dollars, there is also local fallout here in Cullman County.

Two Cullman-based banks are among those listed as creditors in the bankruptcy filings. People’s Bank is owed more than $5.8 million from three loans, the filing shows, while Cullman Savings Bank is owed nearly $1.5 million.

Michael Babb, general counsel at People’s Bank, said only around $500,000 of the Canadays’ debt to the bank was unsecured. John Riley, president of Cullman Savings Bank, would not comment on the bankruptcy.

In addition to Wachovia and the two Cullman banks, other creditors include Steamboat Alabama ($17.9 million), Florida Mercantile Bank ($17.9 million), Fairfield Financial Service ($10.5 million), First National Bank of Florida ($6.9 million), AB&T National Bank ($3.3 million), FirstBank Florida ($2.8 million), Ventana Tampa LLC ($2.8 million), Regions Bank ($2.7 million), Pinnacle Bank ($2.4 million), Brasfield & Gorrie ($2.2 million) and Roy Hockman ($2 million).

“We were very blessed with a lot of people who had a lot of confidence in us and our companies,” Eddie Canaday said. “A lot of people invested and suffered financial loss, not only in our developments but other areas that we were very bullish on. Our concerns have always been with every one of them.”

He said the coastal development’s investors have been supportive.