Baldwins Appear Shielded From Bankruptcy : Finances: Owners of O.C. development company that filed for Chapter 11 protection have been legally insulated from firm’s debts.
The development company that bears their name is in bankruptcy, its credit rating has been trashed by Wall Street analysts, and brothers Alfred and James Baldwin will be spending considerable corporate cash on lawyers in coming months.
But their personal fortunes are likely to survive the financial turmoil.
The brothers, who don’t stint when it comes to the creature comforts, appear to have insulated themselves from liability for their bankrupt company’s debts with a thick layer of corporations, bankruptcy attorney Paul J. Couchot said of the structure outlined in the company annual report.
“Unless there is fraud or a personal guarantee for a loan or other debt, the shareholders of a corporation simply aren’t liable for the corporation’s debt,” said the Newport Beach lawyer, who agreed to talk about the case because he doesn’t represent the Baldwins or any of their creditors.
So the posh family homes in exclusive Emerald Bay, the 100-acre Wyoming ranch and vacation haciendas in Cabo San Lucas, the yacht and stable of off-road racing cars all appear safe as Al and Jim steer their Baldwin Co. through the tricky waters of a Chapter 11 bankruptcy reorganization.
The Baldwins could not be reached for comment. They spent most of Thursday in federal Bankruptcy Court in Santa Barbara, where their attorneys filed the case late Tuesday afternoon.
In the wake of the bankruptcy, two major Wall Street rating agencies have downgraded Newport Beach-based Baldwin Co.’s outstanding debt. But the actions didn’t affect trading of the bonds or their prices, market participants said Thursday.
Standard & Poor’s Corp. lowered its rating on the Baldwin Co.’s $155-million junk bond issue that was floated two years ago to D from single B-. Moody’s Investors Service Inc. took similar action.
Already considered junk bonds, the Baldwin bonds were trading for 55 cents on the dollar Thursday, down a tenth of a percentage point.
“They’re not down that much, which means that institutions either believe there is value here or someone is propping up the market,” said Amin Arjomand, vice president of trading at Dabney Resnick, a Beverly Hills firm that specializes in high-yield bonds.
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Although the Baldwins aren’t talking about their fortunes, others in the building industry who have watched the brothers with varying degrees of awe and envy since the bond issue say that the brothers have not changed their personal lives--even as their businesses have defaulted on millions of dollars in loans and have been sued for non-payment by subcontractors and suppliers.
“I’ve been in this business around here for many years, and I know that in the last four or five years nobody has made any money,” said one longtime Orange County home builder who would speak only on the condition that he not be identified. “We’ve all had to make adjustments in our personal life styles, except for the Baldwins. And we all talk about them and wonder how they are doing it.”
It is a question that is hard to answer. While the Baldwin Co. must file annual financial reports with the Securities and Exchange Commission because of its public bond offering, at least four other Baldwin-owned businesses that receive considerable revenue from Baldwin Co. are private and don’t file any public financial reports.
Although the Baldwin Co.’s recently filed annual report for 1994 shows that the brothers drew modest annual salaries of $130,545, there is no way to tell how much the brothers drew from their other companies.
Last year alone, the report says, Baldwin Co. bought $5.5 million worth of goods and services from several private companies the brothers own and lent an additional $5.5 million to a private commercial real estate partnership in which the brothers each hold a 45% stake.
The annual report also says that Baldwin Co. last year paid the brothers’ private land acquisition company, Village Properties, a total of $79.6 million for land in San Diego and Ventura counties that Village originally bought for $31.8 million.
Village Properties is not involved in the Baldwin Co. bankruptcy, but its fortunes could affect the brothers’ professional and personal wealth. The company has been sued by one of the Baldwins’ major subcontractors for $5.25 million in a dispute over alleged unpaid bills for grading work on two large Orange County properties.
Earlier this week, an Orange County Superior Court judge issued a ruling that will allow Agoura Hills-based Ebensteiner & Co., to file interim liens against Village’s holdings and some of the Baldwins’ personal property until the case is decided. The liens would prevent the Baldwins or Village from disposing of the property and keeping the proceeds.
Ebensteiner, however, must first post a $1-million bond to cover the Baldwins and Village for loss of the use of the property in the event Ebensteiner doesn’t win the suit.
An attorney for Village Properties said that the judge’s order allows Ebensteiner to place a lien on the brothers’ personal property because they are the general partners of the company.
That’s normal in such cases, said bankruptcy specialist Couchot, a partner at Winthrop Couchot in Newport Beach. “If it is a partnership and they, rather than a corporation, are the general partners,” he said, “then their net worth has to be taken into account.”
In the Baldwin Co. bankruptcy, however, the Baldwin Builders operating unit is a corporation and serves as general partner of Baldwin Building Contractors.
The brothers and their family wealth are, therefore, out of the loop.
