Presley Hires Firm to Help Stem the Debt
The Presley Cos., one of Southern California’s largest home builders, has hired an investment banking firm to help it resolve its financial troubles, a move that could lead to the sale of the company.
The Newport Beach-based builder has been saddled with a debt load so big that it had a negative net worth of $5.7 million at the end of 1997.
With its ability to meet its future debt obligations uncertain, Presley said it hired SBC Warburg Dillon Read Inc. to “explore various strategic alternatives,” including a debt restructuring or the sale of all or part of the company’s assets.
Presley said its problems partly stem from the severe housing recession earlier in the decade. “The declining economic conditions began to affect the company’s primary home-building markets in California during 1989 and continued on and off since that time,” it said in a release. Presley executives declined further comment.
The company, the 14th-largest home builder in Southern California, constructs residential communities in Orange, Los Angeles, Riverside and San Diego counties, the Bay area, Arizona, New Mexico and Nevada.
In 1997, Presley lost $89.9 million, including a noncash charge of $74 million in the second quarter from writing down the value of some of its land holdings in the East San Francisco Bay area and the Inland Empire. That compared with a profit of $152,000 in 1996. Its sales last year rose 3% to $329.9 million from $319 million.
The company has continued to encounter difficulties, in part, because it mostly builds master-planned communities that require large capital investments and more debt.
“It means they have to finance more of the upfront infrastructure costs on large portions of property, which means higher investments,” said analyst Stephen Percoco at Lark Research Inc., a Rahway, N.J. real estate research firm.
When the real estate downturn hit, Presley was caught with a relatively high inventory of unsold homes, Percoco said. A debt restructuring a few years ago enabled the company to continue operating, and it diversified out of California, which was hardest hit by the decline in property values.
Despite those moves, the company has been hurt because the real estate market was slower to recover than originally anticipated in areas such as Riverside County, where Presley has planned communities, he said.
Under the terms of its agreement with bondholders, Presley must offer to buy back $20 million of senior notes plus interest every six months until its tangible assets exceed its debt by $60 million. At the end of last year, its debt was $8.9 million higher than those assets.
Some of Presley’s other projects, particularly those in coastal communities, have sold well, Percoco said. In Orange County, the company has had developments in Huntington Beach.
Presley’s stock closed unchanged at $1 a share Wednesday on the New York Stock Exchange.
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The Presley Cos.
Headquarters: Newport Beach
Chairman: William Lyon
Chief Executive Officer: Wade Cable
Founded: 1956
Employees: 375
Building projects: Orange, Los Angeles, Riverside and San Diego counties; Bay Area, Arizona, New Mexico, Nevada
1997 sales: $329.9 million
1997 loss: $89.9 million
Source: The Presley Cos.
