Baldwin Foils Takeover Bid by Its Lender : Bankruptcy: O.C. home builder keeps control of operations in major court victory over GE Capital.
Bankrupt Baldwin Co., its access to cash cut off and work on many of its 18 housing developments halted, won a major victory Monday as it staved off a bid by its chief lender to wrest control of the company from brothers Alfred and James Baldwin.
U.S. Bankruptcy Judge Robin Riblet rejected lender General Electric Capital Corp.’s request to institute foreclosure proceedings and seek a court-appointed receiver to take over the Newport Beach home builder’s daily operations.
GE, which provided $70 million in loans to the developer, argued that its loan agreement with Baldwin has expired and the home builder doesn’t have the financial ability to repay.
That failed to sway Riblet, who instead approved Baldwin’s request for a temporary order barring the lender from foreclosing.
Riblet said Baldwin’s attorney raised substantial doubts whether General Electric is entitled to collect the debt. “There is a serious question whether there is a [debt] at all,” Riblet said.
While no one questions that Baldwin borrowed the money, the builder claims that GE is not entitled to collect on the debt because the lender failed to give the home builder proper notice before seizing the company’s assets.
Baldwin filed a suit last week against General Electric contending that the company violated state law requiring it to give Baldwin five days’ notice before seizing its cash assets. On four separate occasions in the last year, GE has declared Baldwin in default of its loan and seized the company’s cash without advance notice.
Baldwin attorney Brad Godshill argued that if a lender does not provide adequate notice, it forfeits the right to collect its debt under state law. Although a separate hearing will be held on that suit, Riblet on Monday seemed to indicate that Baldwin had built a solid case.
Irving Sulmeyer, General Electric’s attorney, said the Connecticut-based lender would appeal Riblet’s order, perhaps as early as today.
One of Southern California’s largest home builders, Baldwin filed for bankruptcy in July, claiming that General Electric had arbitrarily cut off its funding. Since then, however, GE had continued loaning Baldwin operating funds. The loan agreement expired on Nov. 17.
The loan agreement allows General Electric to make a daily collection of all cash the company generates from asset sales, including homes and land. GE is continuing to collect that cash even though the loan is now expired, and that is why Baldwin is without cash.
On Thursday, Riblet will hear a motion by Baldwin to junk the so-called cash collection agreement and to let Baldwin keep its funds in order to pay ongoing operational costs. Unless it can scrap the agreement, Baldwin will be unable to meet its $430,000 payroll that day, the company said in court documents filed Monday.
The home builder said it expects to take in nearly $3.5 million in the next four weeks, while its bills for the same period will total nearly $3.4 million. Its only source of income, barring some new financing agreement, would be its cash flow from the sale of homes, the company said in its court documents.
In the interim, several of Baldwin’s largest creditors are negotiating to buy the loan from General Electric and replace GE as Baldwin’s chief financial source.
Alfred Baldwin, co-owner of the company with his brother James, said Thursday that the court decision “has got us going on the right track.”
Alfred Baldwin also said that subcontractors appear to be going back to work on company projects this week.
Other attorneys involved in the case say it is unlikely that the court will allow work on Baldwin projects to come to a complete stop. The creditors in the case stand a better chance of being paid if the company is allowed to operate, lawyers said.
