Presley Cos. Stock Plunges After Report of Losses : Debt: Lenders will get greater control over the company in restructuring prompted by $51-million downturn.
Shares of Presley Cos., a Newport Beach home builder hard hit by the slump in California real estate, lost a fifth of their value Tuesday after the company reported a $51-million annual loss and proposed a massive debt restructuring.
Late Monday, Presley announced plans for a debt-for-equity swap to restructure a $340-million credit line. The swap would give its lenders, mostly investors rather than banks, greater control over the company. If approved by Presley shareholders, the swap would convert $95 million of debt into 43.16 million shares of common stock, equal to 70% of the outstanding shares.
“What they are trying is what other large Orange County home builders are doing--cleaning up the balance sheets,” said Don Dahl, partner in the real estate service group at Arthur Andersen in Irvine. “This buys the company time to get through the current slowdown. With a cleaner balance sheet, it may be able to finance new construction and not be overburdened by this debt. The name of the game is capital.”
The company, which builds planned housing communities, said homeowners at its current projects will not affected by the proposed restructuring. “Any Presley homeowner should consider this just business as usual,” said company spokesman Steven Stern. “In fact, it could be a positive for them.”
Presley develops single-family homes and townhomes at the Highlands in Anaheim Hills; Viewpointe North, a 276-unit project in Anaheim Hills, and Horesethief Canyon Ranch, an 820-acre site in Riverside County.
Presley is the victim of its own aggressive land acquisition policy in the late 1980s, when most of the properties were purchased with loans. The company bought vacant real estate at the top of the market and since then has seen the value plummet.
In an attempt to raise cash, the company went public in October, 1991, at $10 per share, raising $70 million. Stock reached a high of $17.25 a share before dropping to its current level. Presley shares fell 87.5 cents a share in heavy trading Monday, closing at $3.125 per share on the New York Stock Exchange.
If the debt swap is completed, Foothill Capital Corp., a lender and money manager in Los Angeles, would become the company’s major shareholder, as it controls the two limited partnerships that are now the company’s major creditors. Foothill holds at least 40% of the outstanding debt through the partnerships, which are mostly composed of major corporate pension funds.
After the restructuring, Presley’s current leading shareholder, Newport Beach builder William Lyon, would see his estimated 32% company stake reduced to about 8% to 10%, according to John Nickoll, president of the Foothill Group, parent company of Foothill Capital.
In late 1992, Lyon pledged his Presley shares as security for loans for his other businesses. Lyon, owner and chairman of the financially troubled William Lyon Co., is involved in numerous other building and development ventures and owns an aircraft services firm called Air/Lyon Inc.
It was unclear Tuesday whether the proposed restructuring of Presley would affect Lyon’s other financial arrangements. Officials at the William Lyon Co. on Tuesday referred calls to Presley, and Presley officials referred calls to the Lyon Co.
“We think this restructuring would be in the best interests of Presley,” Nickoll said. “We also think it’s very positive for current shareholders in the long run because the company is now losing money.”
In addition to the debt-for-equity swap, the company also announced a $20-million write-down in certain real estate assets for the fourth quarter. Nickoll said another $70 million in real estate write-downs could be completed this year as part of the debt-for-equity swap.
Earlier this month, Presley said it had hired the investment banking firm of Bear, Stearns & Co. to act as a financial adviser for the proposed restructuring. At the same time, the company announced that Foothill and Pearl Street L.P. in New York had bought Bank of America’s share in the $340-million credit line.
Analysts such as Barbara Allen, with Donaldson, Lufkin & Jenrette, hailed that purchase because finance companies, unlike banks, are not under pressure from federal regulators to resolve large loans to troubled companies.
“Unfortunately, they had to give away a lot of the company to get out from under the banks and create a lot of dilution to current shareholders, which is always a bad thing,” Jim Wilson, an analyst with Montgomery Securities in San Francisco, said Tuesday. “It’s too bad they had to give away that much of the company. But now they have a lot of opportunities--they can try to diversify and maybe buy some cheap land that’s out there.”
In the proposed restructuring, the remaining $245 million in Presley’s line of credit would become a three-year, $95-million revolving credit line and a $150-million term loan, each with two one-year renewal options. Presley said its plans also call for it to sell a $100-million junk bond issue this year.
Amin Arjomand, vice president of distressed real estate with Dabney/Resnick Inc., a Beverly Hills brokerage firm, predicted the proposed restructuring and junk bond offering could provide a boost for Presley.
“The restructuring gives them a chance to get to ground zero and then move forward,” said Arjomand. “The high-yield offering could he highly attractive.”
Still, Jim Schmitt, an analyst with Westcountry Financial, a securities research company in Ventura County, suggested Presley shares were not a good investment, even with the restructuring.
“The company is just too high of a risk. It’s a pimple of equity with a mountain of debt,” Schmitt said. “I think this earthquake is going to put California’s recovery on hold and that will hurt home builders.”
On Monday, the company announced preliminary financial figures that show its loss from operations will be about $29 million for the fourth quarter, contrasted with a $921,000 profit a year ago. Its annual loss is pegged at $51 million, equal to $2.76 per share, compared to a loss of $10.48 million, or 57 cents a share, just a year ago.
Times staff writer John O’Dell contributed to this report.
