Builders Snap Up Baldwin Co. Junk Bonds

Home builders lusting after the land holdings of troubled Baldwin Co. are attempting to pick up the Southern California acreage on the cheap by acquiring the builder’s junk bonds for pennies on the dollar, traders say.

At least $50 million of the Newport Beach builder’s $155 million in bonds has been sold in the last month, all for 45 cents on the dollar. The sale further depressed the value of the bonds, now trading at about 37% of face value. Baldwin is in bankruptcy proceedings.

“Some builders hope to own the Baldwin land assets through the bonds,” said one trader, who asked to remain unidentified. The bonds could be swapped for real estate as part of a bankruptcy recovery plan.

“The question is whether you can buy up enough bonds,” the trader said.

So far, industry insiders say, only one of Baldwin’s major bondholders--Wall Street investment firm Morgens, Waterfall, Vindiatis & Co.--has dumped its holdings.

Testimony during Baldwin’s monthly bankruptcy court appearance in Santa Barbara this week also revealed that Morgens has sold its $12.5-million share of an $85-million loan that bondholders made to Baldwin two months ago. Some bond analysts see that as a signal that the investment firm has little faith in the builder’s ability to recover and make good on its debt. Morgens would not comment.

Baldwin also seems to be running out of money once again. An attorney for the struggling developer said it will soon need yet another loan to stay afloat. Baldwin has requested loan extensions and increases several times in the eight months since it filed for Chapter 11 bankruptcy reorganization on July 18.

Attorney Paul Harner said Friday that officials of the once-proud home-building company are negotiating with its lenders for additional funding to meet daily operating expenses and to pay subcontractors to keep building homes in Baldwin developments in Orange, San Diego, Los Angeles and Ventura counties.

Baldwin owes about $245 million to various creditors, most of it to bondholders and lenders. Most of the loan the company received earlier this year was used to pay off its $70-million debt to a previous lender and to cover legal and administrative expenses.

To raise funds to pull itself out of the bankruptcy, Baldwin has been soliciting bids from investors or builders interested in acquiring its substantial Southern California properties. The company and its owners, brothers Alfred and James Baldwin, together own or control about 5,000 acres of land.

Harner said Friday that “a number of offers” have been received and are being reviewed. He declined, however, to say whether any offer is for the entire company.

Times staff writer Debora Vrana contributed to this report.