Judge to Hear Credit Extension Plan for Baldwin : Bankruptcy: Some debtors of the Newport Beach builder say the $70-million line would give GE Capital too much control.

Creditors of bankrupt Orange County home-building giant Baldwin Co. are opposing a critical plan for a $70-million credit line that the company says it needs to continue building homes throughout Southern California.

Creditors said the proposed agreement would give the lender, General Electric Capital Corp., too much control over the company.

A bankruptcy judge has scheduled hearings Friday and Saturday on the credit extension and other issues, including how much the company’s owners, brothers Alfred and James Baldwin, should be paid.

The brothers had sought to be paid $975,000 each, but reportedly have slashed their salary requests almost in half--to $490,000--to appease angry creditors. The brothers in the past have augmented relatively small official salaries of $131,000 a year by drawing on company profits. The brothers drew a total of $10 million in 1994, with about $6 million going to James Baldwin, but have said they pumped all of that and more back into the company.

David Frauman, attorney for the court-appointed creditors committee, said Wednesday that he would withdraw his objection to the pay plan if the Baldwins accept the salary cuts. But Frauman said he remains adamantly opposed to the credit agreement between Baldwin and GE Capital.

“If GE thinks Baldwin is in default, then they can start foreclosing” and taking over various Baldwin Co. assets without seeking court permission or notifying other creditors, Frauman complained.

Creditors include hundreds of suppliers and subcontractors, as well as investors who purchased $155 million worth of junk bonds sold by Baldwin Co. in 1993.

The Baldwins filed the Chapter 11 bankruptcy on July 18 after General Electric Capital, their major lender, declared that some of the land they were using as collateral for their credit line was no longer worth enough to secure the credit.

GE pulled $15 million from various Baldwin bank accounts, leaving the company with no cash to cover its daily operations or the more than $3 million in checks it had just issued to various suppliers.

The Baldwins contend that GE’s decision was unwarranted, while the lender claimed in court filings that it took action after the Baldwin Co. borrowed money to pay bills and then used it for other purposes, including payments to the Baldwin brothers, a retainer to the law firm that was advising them on the subsequent bankruptcy filing and an advance fee to a potential new lender.

The Baldwins and GE ironed out their differences after the bankruptcy was filed, and in late July, GE agreed to extend a $70-million credit line temporarily to Baldwin Co.’s two operating units, allowing them to resume daily operations. The Newport Beach-based Baldwin Co. is the operating name of Baldwin Builders Inc. and the Baldwin Building Contractors limited partnership, which are two separate businesses.

The credit is secured by virtually all of the company’s assets, including lots and homes under construction in seven master planned developments in Orange, Los Angeles, San Diego and Ventura counties.

Last year, Baldwin Co. posted an $18.9 million profit.

In an interview this week, Alfred Baldwin declined to comment on the company’s financial condition as it ends its third quarter of operation this year, but said he and his brother hope to pull the company out of bankruptcy by next summer.

He said the company also is negotiating with GE Capital to increase the credit line substantially in order to step up its home-building activities. Alfred Baldwin said he hopes that a proposal for a higher loan limit will be ready by Saturday’s hearing. While he would not say how much is being sought, he previously has said the company is capable of doubling production. Baldwin Co. presently has about 500 homes under construction.

New home sales in Southern California have rebounded slightly in the past six months but remain weak in the wake of a lengthy regional recession. Alfred Baldwin maintains, however, that the company can sell more homes if it can build them because its projects are in highly desirable areas.

Industry analyst Ken Agid agrees: Recent economic reports suggest that the state is poised for an economic recovery that will include a burst of demand for new housing. The Irvine marketing consultant said that, because most builders have slowed activities, the Baldwins and others who can find the financing to increase production could be in for nine months to a year of healthy sales activity.