Irvine-based homebuilder California Coastal Communities Inc. is facing a bumpy road to get out of bankruptcy after missing a deadline last week that could jeopardize a $184 million financing deal.
The company, whose Hearthside Homes Inc. division is handling development of Huntington Beach’s 356-home Brightwater project near the Bolsa Chica wetlands, filed for Chapter 11 bankruptcy protection last October, citing mounting debt.
California Coastal reported owing $82 million tied to a revolving credit line and $100 million on another loan at the time of the bankruptcy filing.
Whether that debt is more or less than the true value of the company’s land holdings is a matter of debate.
California Coastal’s real estate—primarily the 105-acre Brightwater development—were valued by the company at about $243 million as of June. It took a $6 million write-down on the land last quarter.
Recent outside appraisals have put the value of the land as low as $113 million, according to filings made in bankruptcy court in Santa Ana.
Earlier this summer, California Coastal appeared to have found its white night: Luxor Capital Group LP, a New York-based hedge fund operator.
Luxor offered in June to provide the financing to pay off the company’s secured loans in a $184 million refinancing deal with an Aug. 31 deadline.
That deal was altered in July when Luxor required California Coastal to raise an additional $15 million in “junior capital financing” in order for the $184 million financing to go through. The revised deal kept the Aug. 31 deadline.
The $15 million add-on struck the company’s secured lenders as odd.
The initial $184 million financing deal was expected to be “sufficient” to pay off the secured lenders, said lawyers for Wilmington Trust FSB, which is acting as agent for the lenders.
“That has not proven to be the case,” the lawyers said.
Legal challenges related in large part to the changed financing deal have kept California Coastal’s reorganization plan from being confirmed by the bankruptcy court.
Raymond Pacini, California Coastal’s chief executive, said in a regulatory filing last week that the company “continues to have discussions with its stakeholders regarding a consensual restructuring; however, there can be no assurance that such a consensual restructuring can be achieved.”
Luxor
While the deadline for Luxor’s financing deal has come and gone, there have been no court filings stating the firm won’t continue to work with California Coastal.
If a deal still is reached, California Coastal would be the second major Orange County company that Luxor’s helped take out of bankruptcy in the past year.
Luxor also invested in Freedom Com-munications Inc., owner of the Orange County Register, when the Irvine-based company emerged from bankruptcy protection in April.
If Luxor opts not to proceed with the California Coastal restructuring plan, it appears as though the firm’s entitled to a $6.4 million break-up fee, according to court documents. But that likely would be tested in court.
A quick resolution to the case would be the best way to get sales moving again at Brightwater, which took several years to get through the entitlement process and then ramped up just as the local housing market began cooling off.
The company has built and sold about 90 of the 356 homes at Brightwater since 2007, including 17 model homes that were sold to an investor in 2008. Ten of those sales have closed so far this year, and another six homes were in escrow as of early August, according to California Coastal’s most recent earnings report.
Sales of late have been impacted by negative publicity and prospective homebuyer concerns related to the bankruptcy filing, officials said.
Brightwater homes sold by the company in 2007 went for about $609 per square foot. This year homes have sold at $464 per square foot. Homes now in escrow are expected to close at higher prices, according to company filings.
Financials
With sales at a minimum of late, California Coastal lost $10 million in the first half of 2010, according to filings with the Securities and Exchange Commission. It incurred $3.7 million of reorganization costs related to the bankruptcy during that time.
The company’s stock was delisted from Nasdaq in April because of the bankruptcy. Its shares now trade on the low-profile Pink Sheets exchange.
Officials said the company’s still deciding whether to try relisting on Nasdaq once it emerges from bankruptcy.
