Baldwins Give In, Relinquish Control of O.C. Family Firm
With their bills mounting, their cash drawer empty and construction stalled at many of their housing developments, Baldwin Co. owners Alfred and James Baldwin have agreed to surrender control of the troubled firm their father started 40 years ago.
In a deal cobbled together Thursday morning after efforts to win a $10-million credit extension collapsed, the Baldwin brothers said they will agree to creditors’ demand for a court-appointed trustee to take over management of the company, one of Southern California’s largest developers.
The Baldwins, who put the company into bankruptcy in July, would remain as owners but would not be able to issue orders or make decisions about the company’s operations.
Baldwin Co. literally has run out of money, its attorney said. Many of its remaining employees reportedly have been laid off in recent weeks.
The motion to appoint a trustee is scheduled to be heard April 29 in U.S. Bankruptcy Court in Santa Barbara, where the case was filed.
In an interview Thursday, Alfred Baldwin said he and his brother “are reluctant to relinquish control of the company and this is not something we wanted to see happen, but we are willing to accept it because it is the best thing for the company at this point.”
Baldwin Co.’s creditors and lenders, frustrated with a lack of progress in selling the company’s developments to raise cash to pay off debts, had been pressuring the Baldwins for weeks to resign and bring in new management.
Baldwin Co. has built more than 15,000 homes in Southern California and controls more than 5,000 acres of land that industry analysts say are in prime locations.
In order to make the Baldwin properties marketable, however, the company needs operating funds and had been attempting to get a $10-million loan. The cash would have been used to clear up liens that are keeping Baldwin Co. from obtaining title insurance it must have to sell its land.
The inability to obtain title insurance on many projects also is holding up the sale of individual homes, cutting off much of the cash flow Baldwin Co. needs to pay its daily bills and complete work at a number of half-built projects in Orange, San Diego, Los Angeles and Ventura counties.
“The creditors believe at this point that this is a favorable development because we now have the possibility of getting new money into the company,” said David Frauman, attorney for Baldwin Co. creditors.
Negotiations had been under way to hire Lusk Co. President James Johnson to take over Baldwin Co. as part of a rescue plan that called for the Baldwin brothers to resign from the company, Frauman said.
But the deal fell apart at the last minute Thursday, killing an agreement for Merrill Lynch Global Allocation Fund, an investment arm of the giant brokerage, to extend a $10-million credit line to the company.
Johnson did not return numerous phone calls requesting comment.
Frauman said the appointment of a trustee should enable Baldwin Co. to obtain the additional funds necessary to keep operating. Merrill Lynch Global and three other high-risk investors already have loaned Baldwin Co. $85 million.
Baldwin filed for bankruptcy July 18 after its lender at the time, General Electric Capital Corp., declared the company in default and terminated a $70-million line of credit. GE Capital also swept $13 million from the company’s bank accounts, leaving it with no operating funds. Though the loan was later restored, GE was a reluctant lender and by December was again refusing to advance funds to Baldwin Co.
Alfred Baldwin said Thursday that his company was profitable when GE pulled the plug.
When the company filed for bankruptcy, Alfred Baldwin had vowed that the family real estate empire would not be destroyed. “My whole life is here,” he said. “My family built this company [and] we’re going to come out of this a stronger company.”
Market conditions hastened privately owned Baldwin Co.’s slide into bankruptcy. But the brothers have been criticized for siphoning millions of dollars a year from the company to support lavish personal lifestyles that included ski chalets in Idaho, a vacation compound in Cabo San Lucas, a private yacht and an air fleet that included both a corporate jet and the large turboprop airplane they use to commute to Bankruptcy Court sessions in tony Santa Barbara. The Baldwin brothers took over management of the company when their father, Noel, retired in 1970.
The Baldwin Co. bankruptcy petition was filed just a month after the brothers received huge raises. Their continued presence in the company and their attempts to protect their own financial interests reportedly crippled efforts to persuade outside investors to buy up Baldwin Co. assets.
The appointment of a trustee to manage the company is likely to break that logjam, however.
A trustee’s job is to manage the company for the benefit of the creditors, bankruptcy specialists say. So whoever gets the job will be trying to raise as much cash as possible. The company’s creditors see bulk sale of the hundreds of acres and thousands of housing lots owned by Baldwin Co. as the best way to recoup at least part of the more than $245 million the company owes.
The Baldwin brothers still control several businesses not involved in the bankruptcy. Their Village Development, for example, owns about 16,000 acres of undeveloped residential land in the Otay Mesa region of southern San Diego County.
Alfred Baldwin said Thursday that he and his brother are moving ahead on plans to raise funds to begin building on the property.
