Kimball Hill Homes is working toward presenting a plan to restructure its debt and its business to lenders by the end of this month. The Illinois-based builder, which continues to leak money, also stated last week that it is considering several options that include petitioning a U.S. bankruptcy court for protection from its creditors. In a filing with the U.S. Securities and Exchange Commission dated Feb. 14, the Illinois-based builder, which ranked 22nd nationally in closings in 2006, disclosed it had hired Alvarez & Marsal North America, a financial advisory and consulting firm, and was considering hiring a chief restructuring officer as a prelude to filing Chapter 11.
In December, Alvarez & Marsal formed a group within its organization specifically to handle home builders in distress. On its Web site, it claims to be working with several private and public builders in California (including Dunmore Homes), Nevada, and Florida. Rebecca Baker, the Alvarez representative working with Kimball Hill, could not be reached for comment at press time. Bob Ryan, an executive with Kimball Hill Homes who has been fielding questions from the press, tells BUILDER that the consultant is assisting the company to "develop a plan that would be acceptable to the banks." He adds that it is "too early to say" what the details of that plan might be, but he concedes that any restructuring would have to show "some upside" in Kimball Hill's long-term ability to be profitable.
Last month, Ryan told BUILDER that his company had formed a committee comprised of three top executives to negotiate with its banks. However, in its latest filing, the builder acknowledged "there can be no assurance" that it would be able to obtain new terms or covenant waivers with its lenders. The builder's accounting firm had previously expressed "substantial doubts" about whether Kimball Hill Homes could continue as a going concern. That being said, Ryan adds that Kimball Hill's lenders are listening to what it has to say without being unduly influenced by the financial difficulties that other local builders are having.
In its latest SEC filing, Kimball Hill Homes reported total liabilities of $630.2 billion for the period ended Dec. 31, 2007, of which $541.8 million are related to inventory not owned. For the three months ended Dec. 31, Kimball Hill saw its home building revenue decline 36.9 percent to $150.4 million, and it suffered a net loss of $46.4 million, compared to a loss of just under $21 million in the same period a year ago. (Its operations in Nevada alone accounted for $18.7 million of its quarterly operating loss.) The company reported negative cash flow of $39.3 million, compared to negative cash flow of $25 million in the same quarter a year ago.
In the most recent quarter, Kimball Hill's deliveries were off 28.9 percent to 568 units and net new orders fell 38.1 percent to 447 units, despite a 14.8 percent reduction in its average selling price to $230,000. In its filing the company said that it owned 4,248 finished lots and 6,185 lots under development. It also controlled 6,228 lots via options. Over that three-month period, the company had cut in half the value of the land it controls for future development or sale to $25.7 million.
Kimball Hill recorded $13.2 million in quarterly inventory impairment charges. It also stated that during the last three months of 2007 it sold nearly $20 million in land and has identified another $24.8 million in land it intends to sell over the next 12 months. (However, this spring the company is obligated, under joint-venture agreements in Nevada, to purchase land priced at $15.4 million and $43.1 million, although Kimball Hill warns that it probably would not have the liquidity needed to fulfill those obligations, which could trigger what it calls a "cross default" on one of its senior notes.)
As if the downturn in the housing market wasn't putting enough pressure on Kimball Hill's balance sheet, the company reported that it had made a one-time, $1.7 million payment to its president and CEO, Ken Love, to offset the negative tax impact realized by Love when his former employer paid him a lump sum to cover pension benefits. The builder also paid a former officer, Eugene Rowehl, $2.7 million to repurchase 55,000 shares of common stock he owned, as part of a separation agreement when Rowehl resigned last October.