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.