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Woodside recapitalizes with $128 million in notes and $75 million in new equity

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Thirty-three months after emerging from bankruptcy, Salt Lake City, Utah-based Woodside Homes has closed on a recapitalization deal that refinances debt, increases liquidity, and steels its balance sheet for another tough leg ahead in the housing market's early months of recovery.

The debt reorganization and cash infusion is the latest plot twist-redemption-after near-death in 2009, and resurrection in late 2010, and is a strong sign that institutional capital has begun to affirm and bet on a second stage of recovery for the housing market. In this stage, big investors look beyond distressed debt opportunism toward sustainable home building and development operations profitability.

Oaktree Capital Management [BUILDER parent Hanley Wood's major shareholder] and Stonehill Capital Management emerged as leading shareholders in a recapitalization that includes the issuance of $128 million in notes that refinance existing debt from the plan of reorganization, and a $75 million equity offering to existing shareholders. Moelis & Company (through Robert C. Crowley, Managing Director) acted as exclusive financial advisor and sole arranger to Woodside.

The BUILDER 100's No. 29-ranked home builder, Woodside Homes totaled $226 million in home building revenue in 2011 on 888 closings. That's down from a peak of just under $1.4 billion in revenue on a little less than 3,700 closings in 2005.

Woodside filed for bankruptcy in mid-September 2008, and came out of Chapter 11 in December 2009, with $515 million in restructured debt and some $200 million in cash.

In a little under two years, Woodside managed through cash-flow positive operations and the sale of non-core divisions in South Florida, the Maryland-Virginia market, and the Minneapolis markets, to reduce its debt to about $110 million. Today, the company operates about 50 active communities in seven divisions, three in California-South, Central, and North-as well as Las Vegas, Phoenix, Salt Lake City, and San Antonio.

A financial executive with knowledge of the recapitalization characterizes the recapitalization as felicitous timing, given both Woodside's footprint and the signs of life showing up nationally in the marketplace.

"[Woodside] has been doing a good job of buying smallish tracts, and batting a lot of singles and doubles in the opportunistic land acquisition game over the past year, and it's demonstrated it can peel off lots even in markets where big builders are throwing their weight around," said this executive with detailed knowledge of Woodside strategy. "Now, they're as well capitalized as any of the big builders, and they've shown they're capable of being a huge player in home building and development. We think they'll probably continue to work on the margins in the land game, finding opportunities that others aren't pursuing."

Woodside's recovery pace set the stage for this high level of interest and enthusiasm from investors.

"We came in in 2010 with a three-part plan," CEO Joel Shine told BUILDER. "Part one was ‘right the ship,' which was to get finances and operations restructured and rightsized around our core strategy. We sold off non-core operations; paid down debt; got our footprint right. Part two was to get the talent line-up right, and we've done that, relying largely on a very deep talent bench that was already in place. Step three, we redesigned product and restructured our sales and marketing strategy, management, around research and customer-oriented selling, and accountability."

Shine is enthusiastic about the company's new investors and renewed strength. In a prepared statement Shine said, "We obtained about $75 million in equity from our largest and most sophisticated shareholders," he notes. "We also refinanced our existing debt. We have several equity investors as our largest shareholders and even though we have acquired more than 35 projects in the last 18 months, they are giving us the platform to accomplish even more."  

He estimates that in 2012, Woodside will have opened as many as 25 new communities, and will have closed out on about the same number.

Shine says he expects the capacity of the company, its footprint in supply-constrained, rebounding markets, and the capital infusion will allow Woodside to go from 1,000 to 2,000 home deliveries at a fairly fast clip over the next couple of years. "Each of our divisions has been two to three times larger than they are right now, and they have the capability of getting there again," Shine told BUILDER.

The press release goes on to say:

Operationally, new home designs and a positive buying experience have been keys to Woodside's success.  Woodside's Chief Marketing Officer Jay Moss notes, "With our new home designs and our distinctive buying process that gives homebuyers the flexibility to select personal design options in the sales office without the need to go to a design center, we have had a dramatic increase in sales."  Structurally, one of the first changes was to restructure Woodside similar to a public company, with an independent board of directors. "Our main motto running this company is ‘look public, act private, and make money,'" Woodside CEO Shine explains.

"John Hancock has been involved with Woodside as a lender for several years," notes Michael Short, managing director of John Hancock Financial Services' Bond & Corporate Finance Group. "We worked with the company through its bankruptcy. I've served both as the co-chair of the creditors committee in the bankruptcy and on the board of the new company. Given the depth of the downturn that the housing market went through and all the problems this company has faced, we are pleased with the end result."

Central to the company's recovery has been the development of a long-term strategy for shareholders and employees. "Our new business planning process is much more strategic and research-based than that of many other homebuilders," explains Rick Robideau, Woodside's Chief Financial Officer. "The recapitalization significantly increased the company's liquidity, strengthened its balance sheet, and created the right capital structure to facilitate the company's aggressive growth plans."

"As the economy has begun to heal, Woodside has made great progress in a relatively short time by relentlessly focusing on the critical success factors of its business model. Management has successfully restructured the balance sheet while also focusing on improving its operations and its customer product and experience," said Steve Friedman national director of Ernst & Young's Homebuilding Services.



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About the Blogger

John McManus

thumbnail image John McManus is an award-winning editorial director for the Residential Construction Group at Hanley Wood in Washington, DC. In addition to the Builder digital, print, and in-person editorial and programming portfolio, the group includes strategic content direction for Affordable Housing Finance, Apartment Finance Today, Custom Home, Multifamily Executive, and Residential Architect.