Newport Beach-based William Lyon Homes looks set to emerge from a quick stint in bankruptcy later this month with a much smaller debt load and a reworked board of directors.
The iconic homebuilder—which builds in California, Arizona and Nevada—got court approval for its pre-packaged plan of reorganization earlier this month, a little less than two months after the company filed for bankruptcy in Dela-ware.
The company said it expects formally to emerge from bankruptcy by the end of February.
The builder is shedding a heavy amount of debt under its restructuring, which will allow the company “to emerge from this process a more competitive company with a strong balance sheet,” President William H. Lyon said in a statement.
The reorganization plan will result in a nearly $180 million reduction in debt for the builder, cutting William Lyon Homes’ overall debt by some 37%, according to court documents. Annual cash interest expenses of $54 million are expected to be reduced by $24.7 million.
Roughly a quarter of William Lyon Homes’ revenue effectively went to paying off those debt obligations at the time of its bankruptcy filing.
The company saw $148 million from home sales in the first nine months of 2011, the last time it reported earnings. It had a $54 million backlog of homes sold but not closed at that time.
Unsecured creditors holding a little under $300 million of senior notes at the time of the bankruptcy are expected to recover about 40% of that total under the restructuring plan. Other claim holders are expected to be paid in full, according to court documents.
Along with the senior note holders—who overwhelmingly approved the restructuring plan—the restructuring will have the largest effect on the bottom line of Gen. William Lyon, the builder’s cofounder and chief executive.
Lyon and his family will invest $25 million into the company, in return for an initial 20% stake in the recapitalized company. Warrants and management incentives could increase that stake.
Big Hit
The plan represents a big hit to the ownership stake of Lyon and his family, which paid $275 million to buy the outstanding shares of the builder and take the company private in 2006. The company and its predecessors have sold some 72,000 homes since 1956, becoming one of the better-known builders on the West Coast over that time.
Gen. Lyon and his son, William H. Lyon, are retaining their positions in the company and signed three-year employment contracts that will pay them a combined $1.5 million in annual salaries, not including bonuses.
The company’s other senior management team have signed one-year contracts, according to court records.
Board Shake-Up
A bigger personnel shake-up involves the company’s board, which will see three new faces and two departures for a total of seven directors.
Gen. Lyon and William H. Lyon are set to remain on the company’s board—the former remaining as chairman—as are Gary Hunt and Douglas Ammerman.
Hunt is a government, real estate and business consultant, a former executive of Newport Beach-based Irvine Company, and served as the interim chief executive for Santa Ana-based Grubb & Ellis Co. a few years ago. Ammerman was the managing partner for the Orange County office of accounting firm KPMG LLP, and has also served on the board for local companies such as El Pollo Loco Inc. and Quiksilver Inc.
Leaving the board are two long-term members: Harold Greene, a former board member at Grubb & Ellis, and Alex Meruelo, the founder of the La Pizza Loca restaurant chain who last year tried to buy the NBA’s Atlanta Hawks franchise.
Board Members
New board members include:
• Matthew Nieman, a managing director with Houlihan Lokey Capital Inc.’s L.A. office and head of the consultancy’s real estate practice.
• Nathaniel Redleaf, an analyst with the New York-based hedge fund Luxor Capital Group that will be a major shareholder in the homebuilder.
• Lynn Carlson Schell, chief executive of Shelter Corp., a Minnetonka, Minn.-based developer and operator of apartment and senior living communities.
Schell recently was appointed by a pair of shareholders groups at the company, according to court filings.
