Baldwin Co. Still Standing, but the Foundation is Shaky : Real estate: The bankrupt developer’s line of credit is again in jeopardy, although some scenarios offer hope for the firm.
The fate of Southland developer Baldwin Co. is as shrouded in fog these days as the coastline along which it builds.
The privately owned company, which has almost 500 homes under construction in three counties, apparently lost its major lender Friday. If a proposal for Baldwin Co.’s major creditors to take on even more debt and step in as its new source of funding doesn’t work, finding a new lender won’t be easy.
Baldwin sought shelter in bankruptcy court on July 18 and since then has been operating under a shaky alliance with the very lender that Baldwin Co. claims precipitated the bankruptcy by cutting off the developer’s line of credit.
Baldwin owes that lender, General Electric Capital Corp., about $70 million. Any new lender would either have to pay off GE or take a back seat to the Connecticut-based financial giant in the event Baldwin went belly up and its assets were sold to pay its bills. Those assets include hundreds of developed and undeveloped lots on 5,000 acres of prime residential land in Orange, San Diego, Los Angeles and Ventura counties.
But though there is no certainty that Baldwin can survive this latest blow, neither is there any certainty that it will die.
The company’s present situation is sure, though, to create chaos in Baldwin-built developments, industry insiders say.
“If they truly cut off the credit, the construction will deteriorate,” said Al Gobar, a Brea-based development industry consultant. “If you live next door to a half-finished [Baldwin] house, it may never get built. And a lot of those unfinished houses have already been sold. It would be hard for those people to get their money back.”
In addition, Baldwin homeowners who already have moved in may not get much attention from unpaid subcontractors if there are problems with their houses. The subcontractors who have continued building Baldwin homes since the company’s bankruptcy filing are likely to walk away if they can no longer get paid, Gobar said.
Still, U.S. Bankruptcy Judge Robin Riblet, who is overseeing the stormy Baldwin case, has broad powers to keep General Electric from foreclosing on Baldwin Co. property.
General Electric canceled its loan agreement with the builder in a dispute Friday over collateral, but then agreed to continue acting as Baldwin’s lender for 10 days. Both sides are due back in court in Santa Barbara on Nov. 27.
If Baldwin hasn’t found a new financial partner by then, bankruptcy specialists say, the judge has the power to allow the company to begin diverting to ongoing operations cash that previously had been earmarked for repaying the GE loan.
Baldwin, however, is looking to its major creditors to come to the rescue by paying off General Electric. The creditors, who hold $155 million of Baldwin junk bonds, would then become the company’s lender as well.
Finally, GE could return to the fold. This isn’t the first time the uneasy relationship between Baldwin Co. and General Electric has crumbled.
Baldwin, in fact, alleges that the bankruptcy was precipitated when the lender walked away from it in July. GE subsequently returned to the table with a bigger loan package and a successful plea to serve as Baldwin Co.’s post-bankruptcy financial partner.
If Friday’s falling-out is final, however, and Baldwin doesn’t come up with a new lender, the next step in what some observers are calling a high-stakes poker game is for GE Capital to file a default notice as the first step to foreclosing on Baldwin assets.
Baldwin owes GE about $30 million that it has borrowed since its bankruptcy filing, as well as about $40 million borrowed before July.
State law requires several steps between the notice of default and an actual foreclosure auction. At a minimum, it would be 157 days before Baldwin assets could be sold.
At any time during that period, Baldwin Co. could pay off its debt and cancel the proceedings.
In a bankruptcy, the court also has the power to stop the foreclosure. Baldwin Co. attorneys, in fact, are believed to be preparing a motion to seek an order blocking GE from declaring a default.
If Riblet believed Baldwin Co. had enough cash coming in from home and land sales to keep it afloat, “then the court could allow the use of that cash to finance operations rather than for paying off debt,” Newport Beach bankruptcy attorney Paul J. Couchot said.
Baldwin already has supplied professional appraisals showing that the value of its land holdings far exceeds its debt to GE Capital, so Couchot believes the judge would be comfortable diverting the cash income--which was paid directly to GE under the old loan agreement.
The most likely possibility at this stage, however, is that the investment institutions that hold $155 million worth of Baldwin Co. junk bonds will decide it is in their best interest to keep the builder in business.
“It’s unlikely that [Baldwin Co.] would be allowed to just die,” Couchot said. “There is too much money at stake.”
