Baldwin Building Firm Files for Bankruptcy : Real estate: Newport-based Baldwin Co., one of state’s largest and oldest in its industry, falls victim to slump.
Baldwin Co., one of Southern California’s largest and oldest home builders, Tuesday filed for bankruptcy protection, making it the biggest developer to fall victim to the region’s prolonged real estate slump.
The company, owned by multimillionaire brothers Alfred and James Baldwin, has built more than 15,000 homes during the past four decades and currently has almost 3,000 under construction or planned in seven developments stretching from Oxnard to the Mexican border.
Baldwin Co. filed for Chapter 11 reorganization in federal bankruptcy court in Ventura County, where it has major holdings. In Orange County, its current developments include the 590-acre Summit of Anaheim Hills and 800-acre Portola Hills in South County.
Alfred Baldwin said the bankruptcy was precipitated when the company’s major lender, G.E. Capital Corp., last week cut off its $60-million revolving credit line, leaving Baldwin and its affiliates without enough cash to pay daily bills.
“G.E. was taking all our cash,” said Baldwin. “I’m confident that this will give us the time we need to restructure. This is not the end of the Baldwins. We’re going to come out of this.”
The company said it plans to sue G.E. Capital. Officials at the lending company could not be reached for comment.
Baldwin said the company’s two operating units, Baldwin Builders and Baldwin Building Contractors, have obtained a $20-million credit line from Foothill Capital Corp. and that daily operations “will continue as usual.”
The company’s 300 employees will continue to receive paychecks, he said, and warranties for Baldwin-built homes will be honored.
“We’ve been through a long slow recession in California, our projects are selling and we’ve been profitable,” said Baldwin.
While a severe and prolonged real estate slump has pushed many of Southern California’s beleaguered home builders to the brink of bankruptcy, most have coped by selling off assets and major landholdings.
But the Baldwins “ran out of staying power,” said San Diego real estate consultant Sanford R. Goodkin. “The housing industry is going through chaos and this is the latest evidence that even the major players aren’t protected.”
The Baldwin Co. has been juggling finances for more than a year in an effort to keep afloat.
The company sold $155 million in junk bonds in 1993 to raise operating cash and has had to pay $17 million a year just to keep up with the interest on the bonds. It has had to sell valuable undeveloped land to raise cash to meet interest payments, stripping itself of future profits.
In all, Baldwin Co. owed lenders $245.7 million as of March 31, according to its quarterly report.
Analysts said the bankruptcy filing could mean trouble for bond investors and the company’s cadre of subcontractors and suppliers.
“This is one bankruptcy that will have repercussions on the East Coast, because Wall Street backed the Baldwins’ debt,” said Ken Agid, an Irvine real estate consultant. “This could hurt other Southern California builders’ ability to borrow money.”
The Baldwins have hired Donaldson Lufkin & Jenrette, the New York investment bank, to restructure the company’s 1993 bond deal, Baldwin said.
Encouraged by an upturn in home sales during by 1994, many Southern California home builders bet that 1995 would be an improvement. But the year has been lackluster with plummeting sales.
“Most everyone in the home building industry thought this year would be better--clearly that hasn’t happened and builders are hurting,” said Larry Webb, incoming president of the Orange County Building Industry Assn. “But I don’t think you are going to see a wave of bankruptcies, the Baldwins are an isolated event.”
Previously, the largest home builder bankruptcy in Southern California history was filed in May by Newport Beach-based Bramalea of California Inc. after its Canadian parent company went under.
Other Southern California builders that have filed bankruptcy include Los Angeles-based Leisure Technology in 1991 and Anaheim Hills builder Hill Williams Development Corp. in 1993.
But the Baldwin Co., plagued by massive debt load and increasing interest payments, is the largest and most high profile victim.
Baldwin Co. was started in the Los Angeles County community of Temple City in 1956 by mail clerk Noel Baldwin, who with his sons turned his small chicken ranch into a housing tract.
The brothers took over operations from their father in the early ‘70s and moved the company to Orange County, where they weathered several recessions and became well known for their lavish lifestyles and charitable activities.
They also gained a reputation as hard-nosed businessmen who did not shy away from forcing their subcontractors and suppliers into waiting for payment while they used their cash to buy more land and pursue other deals.
A year ago, when a cash shortage hit the company, more than a dozen subcontractors filed almost $1 million worth of claims for non-payment against Baldwin and its affiliates in less than a month.
Even before that happened, however, one of the company’s major subcontractors, Agoura Hills grading contractor Ebensteiner & Co., sued Baldwin Co., the brothers individually and a separate company they own, Village Properties, alleging that Baldwin refused to pay Ebensteiner more than $9 million for work on several projects.
Additionally, Baldwin Co. said in its recently filed 1994 annual report that it had defaulted on $25.3 million in loans secured by lots in Thousand Oaks and in San Diego County but that the lenders had agreed not to foreclose on the property while debt restructuring negotiations continued. The loans have since been restructured.
In the past two weeks, the company has been sued for more than $1 million by several other subcontractors who say they were not paid for work on Orange County projects in Anaheim Hills and Portola Hills.
In Thousand Oaks, where the Baldwins are building more than 400 homes, city finance director Bob Biery said he was aware of the bankruptcy, but not sure how it would affect the development. He said the Baldwins are current on their payments for a $14-million Mello-Roos bond issue sold to pay for infrastructure in the development.
“It’s just too early to tell,” said Biery.
But Al Baldwin isn’t worried, vowing that the bankruptcy won’t destroy his family real estate empire.
“My whole life is here. My family built this company,” he said. “We’re going to come out of this a stronger company.”
* RISING HIGH IN SOCIETY: The Baldwin brothers are known for aiding charities. A11
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Road to Chapter 11
Here’s the sequence of events that led the Baldwin Co., one of California’s largest home-building firms, to bankruptcy:
* Baldwin Co. collects money daily from sale of homes and land, uses it to repay debt including construction loans, subcontractors and others.
* When money is short, Baldwin draws on General Electric Credit Corp. credit line, repaying from later land and home sales. GECC uses value of land to secure credit.
* GECC declares some Baldwin land no longer usable as collateral, says company no longer meets required loan-to-collateral ratio.
* GECC withdraws $15 million from Baldwin bank accounts to balance ratio, tells Baldwin it must stop paying other creditors until further credit line reduction is made.
* Baldwin bounces $3 million worth of checks when GECC drains its bank accounts.
* Baldwin decides GECC conditions will force it to default on other debt, files bankruptcy to stop GECC and gain time to restructure finances.
Sources: Times reports, court documents
