Beleaguered Baldwin Co. would receive an $85-million infusion under a rescue plan approved Wednesday by the Newport Beach home builder and a new lender group that includes several of the company's junk bond holders.
If the agreement is approved today in U.S. Bankruptcy Court, Baldwin Co. would receive $70 million to pay off its debt to former lender General Electric Capital Corp. and would get a $15-million credit line to fund operations.
But the company, which has been scrambling to meet its payroll and has seen work halted on most of its 18 Southern California projects, would not receive any of the funds until mid-January, according to court documents.
A big roadblock still looms--former lender GE is moving to foreclose on Baldwin, which filed for bankruptcy July 18. The company's debt to GE became delinquent last month.
GE originally was blocked from starting foreclosure proceedings, but Bankruptcy Judge Robin Riblet refused Tuesday to extend the week-old ban. She said she had to let the Connecticut-based lender proceed because there wasn't a proper challenge to the foreclosure plan on file with the court.
Attorneys for the Baldwin bondholders and the company's creditors committee both said Wednesday that a new motion to block the foreclosure is expected to be filed this morning and heard by Riblet this afternoon in Santa Barbara.
If the new loan agreement survives, Baldwin Co. also is asking to continue paying daily bills with cash from home sales that had been earmarked to help pay off the debt to GE. The money would enable the company to meet a biweekly payroll of $430,000 for about 300 employees, but it is unclear whether this cash would provide sufficient funds to restart work on the company's projects.
The bondholders are pushing to help Baldwin Co. because they have a big stake in its future.
Baldwin Co. sold $155 million worth of junk bonds in a public offering in late 1993. The three institutional investors backing the new loan plan collectively own more than half those bonds. Interest alone on the bonds totals $17 million a year, and Baldwin has suspended interest payments while it is in bankruptcy.
Additionally, the junk bonds, which recently were trading at about 40 cents on the dollar, could become worthless if Baldwin Co. were to be liquidated in a foreclosure fire sale.
The new loan agreement calls for commercial lender Foothill Capital Corp. and bondholders Merrill Lynch Global Allocation Fund, Salomon Bros. and Morgens, Waterfall, Vintiadis & Co., all based in New York, to finance the $85-million loan.
Merrill Lynch would provide $40 million, Foothill would come in with $20 million and Salomon and Morgens, Waterfall each would provide $12.5 million.
GE had indicated last week that as part of its foreclosure effort it intended to seek the ousters of Baldwin Co. co-owners James and Alfred Baldwin and the appointment of a receiver to manage the daily affairs of the company.
There are no requirements in the new loan agreement that the Baldwin brothers give up control of the company, but Baldwin Co. has agreed to provide full access to its books and records to overseers from the Price Waterhouse accounting firm who would monitor and report on the company's performance to the lenders and to the Baldwin Co.'s unsecured creditors committee.
Terms of the loan agreement also require Baldwin Co. to pay an annual fee of $3.4 million just for access to the money.
The company has agreed to put up as collateral most of its property and much of the vacant land held by a separate company, Village Properties, that the Baldwin brothers own. In order to do that, it must pay off General Electric, which now has liens of the same property.
If Baldwin Co. fails to block a foreclosure by GE, default notices could be recorded against Baldwin Co.'s two business units on Friday.
It would be at least four months before an actual foreclosure sale could take place, but the foreclosure notice would "seriously impair" efforts to complete financing for the new loan agreement, the bondholders argued in court documents filed this week.
In a memo Wednesday to employees, the Baldwin brothers said that they believe the "legal skirmishes with GE have become less relevant" because of the new loan agreement.
But an attorney involved in the case said Wednesday that it is likely that members of the lending coalition would withdraw and the new loan agreement would collapse if the collateral offered by Baldwin Co. is tied up in a foreclosure action.