John Laing Homes' three biggest lenders filed objections Friday to the company's Chapter 11 bankruptcy petition after the company announced its intent to restructure using interim financing provided by Emaar America Corp., its parent company and affiliate of United Arab Emirates-based Emaar Properties.
According to paperwork filed in the U.S. Bankruptcy Court for the District of Delaware, WL Homes, John Laing's corporate mantle, collectively owes Bank of America, Wachovia Bank, and RFC Construction Funding $283.3 million. The company also owes $67.3 million in secured project loans to Wells Fargo Bank, Housing Capital Co., First Bank of Oak Park, Indy Mac Federal Bank, and KeyBank.
At issue is the fact that the company was forced to file for bankruptcy protection last Thursday after its parent corporation refused to continue funding its operations on an unsecured basis. By providing the company with debtor-in-possession (DIP) financing, Emaar would gain super-priority status over secured lenders, ensuring Emaar would be repaid first. The secured lenders seek "adequate protection," meaning they want monetary guarantees that the DIP financing will not diminish the value of the collateral securing their loans.
Since purchasing the Irvine, Calif.-based private builder in June 2006, Emaar has sunk roughly $613.8 million into the struggling company, according to court documents.
However, also included in the most recent documentation were intriguing details of the company's tumble into insolvency. Chief among them:
* A precipitous fall off in home sales. Between Jan. 1, 2008, and Nov. 30, 2008, the company sold roughly 560 homes for revenues of $287 million. Those figures were down from 1,371 homes sold in 2007 for $937 million in revenues.
* Turmoil on the board. All members of the company's governing Board of Managers resigned, with one notable exception: Robert Booth, company CEO.
* A dramatic headcount reduction. From the time Emaar acquired the company in mid-2006 through the first week of February 2009, management has cut headcount by 90%. Roughly 90 employees remain on payroll.
* The loss of construction and engineering licenses in California. The company held its licenses in California through individuals known as qualifying responsible managing officers. However, those individuals have filed notices of disassociation with the state's licensing board, leaving the company in a scramble to appoint new ones.
* The loss of funding. Both Bank of America and Wachovia froze the company's operating accounts to offset owed amounts. The company was able to ante up some cash to prevent checks from the BofA account from bouncing, but the same did not hold true for its Wachovia accounts. According to court documents, the bounced checks "caused extreme disruption" to the company's business.
* A notice to vacate its office. On Feb. 12, 2009, the company received a five-day notice to pay rent or vacate its headquarters.
From the court documents, it appears that the John Laing Homes that will come out of Chapter 11 restructuring is not likely to resemble the national home building empire that Emaar and John Laing intended to build. The company has shut down most of its divisions with the notable exception of its Southern California and Laing Luxury divisions, the latter of which includes a custom home building operation. In addition, the company also will close Emaar Design Studio, which was formed in 2007 to provide design consulting and coordination for Emaar's numerous developments around the globe. What remains as the company's core operations are approximately 51 development projects, nine of which are luxury developments.