Covington Development Out of Cash, Unable to Pay on Debt : Recession: If immediate repayment is demanded, the Fullerton residential building firm could go into bankruptcy.

Officials of financially ailing Covington Development Group Inc. said Wednesday that the residential building company has run out of cash and is unable to meet a scheduled debt payment.

If the debt holders now exercise their right to demand full payment, the action could drive Covington into bankruptcy.

Earlier this year, Covington announced that it was in default on $7.3 million in bank loans and $6.7 million in other debt. And in April the company reported that its net worth at the end of 1991 had sunk to a negative $3.4 million from a positive $9.6 million a year earlier.

George Reinhardt, vice president of operations for the company--once a major regional home builder with projects in California, Nevada, Arizona and Oregon--said that no demand has been made yet for immediate repayment of the debenture debt that has gone into default. A debenture is an unsecured corporate IOU sold to investors who hope to profit from the high interest rates the company promises to pay.

Covington’s debentures, issued in 1979, are widely held, Reinhardt said.

He would not disclose the status of any negotiations between Covington and its debenture holders.

But Covington “is currently unable to cure its default” and would not be able to repay the debt holders if demand for immediate payment were to be made, Reinhardt said. He would not say whether Covington is negotiating with lenders or potential investors for an infusion of cash.

Reinhardt said Covington’s operations “are generally declining.” The company now has nine projects, most of them in the final stages, down from 14 projects a year ago. Covington has been unable to secure financing to start new projects and declining land values have wiped out its investments in raw land purchased during the building boom of the late 1980s.

In its statement Wednesday, the company said it missed an Aug. 14 payment of $648,000 in principal and $166,000 in interest on $2.5 million still owed on a series of 12.5% convertible subordinated debentures sold in 1979.

Under the terms of the debt agreement, either the debenture trustee or the holders of 25% of the principal amount of the debt outstanding now can declare the entire indebtedness due and payable.

Company officials say Covington is a victim of the recession and the regional home-buying slump that began early in 1990.

The 30-year-old company was last profitable in 1989, when it earned $4.2 million. Since then, according to the company’s annual and quarterly financial reports, it has lost more than $15 million.

In June, Covington’s common stock was dropped from the NASDAQ market because the company no longer had the minimum $1 million in capital and cash surplus required for continued listing.

At a Glance: Covington Development Group Inc.

* Corporate headquarters: Fullerton.

* History: Founded in 1962 as Covington Technologies Inc., a manufacturer of prefabricated building components and builder of prefabricated homes. Dropped component manufacturing in 1987 and switched to conventional construction. Changed name to Covington Development Group in 1988.

* Corporate officers: Loran D. Covington, chairman, president and chief executive; George A. Liolios, executive vice president; George Reinhardt, vice president; Robert E. Vedaa, chief financial officer.

* Nature of business: Develops land for residential projects and builds homes and apartments in California, Arizona, Nevada and Oregon.

* Employees: 30.

* 1991 revenue: $53.3 million.

* 1991 earnings: Lost $13 million.

* 1992 first-half revenue: $13.2 million.

* 1992 first-half earnings: Lost $2 million.

Source: Covington Development Group Inc.