WCI Communities announced Thursday that it will be out of bankruptcy Aug. 31, nearly 13 months after retreating into Chapter 11 and shedding $2 billion in debt and other liabilities.
Under the plan, confirmed by the U.S. Bankruptcy Court Delaware Division and supported by a majority of its creditors, including its senior secured lenders as well as the official creditors' committee, the company's senior secured creditors will get 95% equity in the company in return for $450 million in new debt to be issued.
Unsecured creditors will receive interest in a litigation trust, basically any returns expected from various lawsuits, and an initial 5% stake in the company that could grow to 35% depending on future operations.
All the company's stock disappears under the plan, its holders left with nothing to show for their investment but their defunct stock certificates.
"Given the fact that we are experiencing one of the most challenging real estate markets and economic environments in recent history, this is a truly remarkable achievement," said WCI CEO David L. Fry in a written statement. Fry will stay on as president and CEO, a position he was appointed to during the throes of bankruptcy. Fry has been with WCI since 1995, serving as COO before being named to the interim CEO position last August.
"WCI, along with its major constituent groups, have worked together to fashion a plan that allows us to emerge as a de-leveraged lifestyle community developer and land holding company and ensures that recoveries are allocated fairly among the company's stakeholders," Fry said. "The flexibility granted under the plan allows WCI to navigate its business during these unprecedented times and beyond. I am confident that the company and its stakeholders will succeed together."
No mention is made in the announcement as to whether WCI will continue as a builder, only as a developer and land holding company.
WCI's fate was sealed by its products, its market, and its debt. Though the company had diversified in recent years to more single-family and to the Mid-Atlantic and Northeast, its primary product was high-rise, high-priced condominiums in Florida. When the downturn hit, the bottom fell completely out of that market and, for the first time ever, buyers walked away from the condominiums they had put 20% down payments on in droves. In one quarter, the company had negative sales.
Already burdened with more than 70% debt to equity, the company lacked the cash to hang on as the market continued to crash.
Its predicament rose to high drama when billionaire Carl Icahn took a 14 percent stake in the company in January 2007. By March, he offered all takers $22 a share for their stock but withdrew his offer within a month when few takers showed up and it had become clear that the stock price was beginning a free-fall.
WCI's stock, which is traded in the pink sheets until tomorrow after which it becomes worthless, sold last for $3 a share June 18.