Lyon Co. Undergoes Major Restructuring to Pay Debt
William Lyon Co., California’s largest home builder for the last four years, is undergoing a major restructuring in an effort to satisfy its major banks’ demands for repayment or increased security for more than $200 million in land acquisition and development loans.
As part of the restructuring and the shrinking of the company’s Northern California operations, company President Dick Randall is resigning and will become a full-time consultant to the company as of Jan. 1.
Randall, who lives in San Jose and heads the company’s northern division as well, joined Lyon Co. in 1972 and has been its president since 1981. He could not be reached for comment Friday. His resignation was confirmed by Rick Sherman, senior vice president and general counsel for Lyon Co.
Sherman also confirmed Friday that, in one of the many agreements the company has negotiated with its lenders in recent months, it has agreed to set aside all proceeds from the sale of homes or land in five of its Aliso Viejo projects to help pay interest on land acquisition and construction loans from First Interstate Bank.
Other loan and security agreements reportedly are being renegotiated with the company’s lenders in Northern California.
Development industry sources said this week that Lyon Co. is expected to make several major announcements in early January about land sales and other facets of its business. Sherman said Friday, however, that he is “not aware of any announcements being contemplated.”
Lyon Co. and affiliates own about 5,000 acres in Southern California and 2,000 acres in Northern California. Big chunks of that land, including the five Aliso Viejo developments and the 1,000-acre Mountain Gate Ranch project in Corona--in which a Lyon Co. affiliate as well as company founder William Lyon are part owners--were acquired in 1989 when Southern California land prices were at historic highs.
Since then, prices have fallen 40% or more, leaving Lyon and many other developers owing more to their banks than they can raise by selling the land.
Also, slow home sales across California have hurt developers such as Lyon because they often cannot generate sufficient cash from residential sales to make the required interest payments on their loans.
Documents filed with the Orange County recorder’s office show that Lyon Co. in Southern California has renegotiated loan agreements with Bank of America, Citicorp Real Estate Inc. and a consortium of five banks headed by Wells Fargo, including Continental Bank, Chase Manhattan Bank, Union Bank and the former Security Pacific National Bank--now part of Bank of America.
Lyon Co.’s financial woes stem largely from the reaction that banks and their regulators have had to falling land prices. Federal regulators for several years now have been demanding that banks slash their real estate portfolios and get rid of problem loans. The banks, in turn, are pressuring Lyon and dozens of other Southland developers to sell land at huge discounts just to remove it from their books.
“A lot of banks are very nervous and are taking a doom-and-gloom view of Southern California real estate,” said Kirk Reidinger, senior tax manager with the accounting firm Price Waterhouse.
