Maronda Homes, a 29-year-old family-owned builder, yesterday filed for protection from its creditors under Chapter 11 of the U.S. bankruptcy code.
However, this is not your garden-variety bankruptcy. For one thing, only three of the 30 business entities under the Maronda umbrella—Maronda Homes, Maronda Homes of Ohio, and Maronda Homes of Cincinnati—filed for bankruptcy protection. Its Florida and Georgia home building divisions—which account for 17 of the 21 cities in which this builder is active—aren’t included in the petition, nor is Maronda Inc., the company’s parent and sole shareholder.
The builder also makes clear that it wasn’t forced into bankruptcy by weak business conditions. "This filing in no way reflects on our financial stability or our intention to continue normal operations throughout the reorganization period and beyond," says its prepared statement.
Maronda's court documents show that claims by its 20 largest unsecured creditors are only $734,425. The company’s assets—between $100 million and $500 million—exceed its liabilities, which range from $50 million to $100 million, by a considerable margin. And the builder says its home sales in March 2011 were the best it has had since the federal tax credit for first-time home buyers expired.
But for the past two years, Maronda Homes has been battling with a syndicate of 14 banks over what the builder characterizes as increasingly unreasonable lending demands.
In documents filed with the U.S. Bankruptcy Court in Pittsburgh, Maronda Homes says that in 2009 its banks, in response to the housing recession, started demanding higher interest rates and more collateral as a prerequisite to renegotiate a new credit agreement. Maronda says that it acceded to the banks’ demands and, on March 8, 2010, executed a $210 million revolving credit line.
But it wasn’t long after receiving that new loan that the banks became “inflexible” about the process of mortgaging properties that collateralize that debt. (The builder’s properties in Ohio and Pennsylvania are the collateral for this loan.)
By September 2010, the fees alone that the banks were charging the builder exceeded “several million dollars.” Lenders eventually demanded 100% of the proceeds from the sale of mortgaged properties, and over a six-month period around 180 sales occurred, yielding $33 million to the banks.
That December, Maronda and its primary lenders Bank of America and Wells Fargo finally reached an agreement over the terms of the loan. The other banks in the syndicate accepted those terms, but Huntington National Bank, which represents 6.7% of the builder’s loan, did not. BofA, the loan’s administrator, informed Maronda that the deal wouldn’t go through unless the entire syndicate was on board. The other banks also declined to buy out Huntington’s position to move the agreement forward.
With the banks threatening to foreclose on its properties, and with the absence of credit (Maronda claims it does not have access to unsecured debt), Maronda Homes stated that its only option was to file for Chapter 11 protection.
Joseph McDonough, Maronda’s bankruptcy attorney, says he still doesn’t know exactly what Huntington Bank objects to. “They’ve been pretty obnoxious,” he tells Builder. But in bankruptcy, McDonough explains, the court can remove roadblocks to an agreement put up by a single bank. “We need to return to the negotiating table to determine if we can do this the easy way or the hard way. Maronda has indicated that it is capable of doing either.”
The court released $7 million in cash collateral for the builder to use to cover its operating expenses over the next 30 days. In petitioning the court to authorize the use of that money, Maronda Homes stated that the aggregate retail value of its mortgaged real estate—$152 million—is at least $50 million more than the $98 million that was still available on the revolving credit line. The company also told the court that its construction and home-servicing expenses were around $5 million per month.
Further details about Maronda’s business, such as its inventory, revenue, and closings for 2010, were not available, as this builder eschews disclosing these data publicly. Jeff Donaldson of Elias/Savion, a public relations firm that Marondo hired to field questions about its bankruptcy situation, says he can’t comment beyond the builder’s four-paragraph statement.
John Caulfield is senior editor for Builder magazine.