Perhaps the customer-oriented FAQ page on Kimball Hill Homes' Web site best summarizes the situation at the Rolling Meadows, Ill.-based builder. "I have heard you are bankrupt," the copy reads. "Are you going out of business?"
According to Kimball Hill, whose bankruptcy plan was approved by a federal judge Thursday, the answer is no. Kimball Hill management maintains it will continue to build, sell, and deliver homes as it restructures its $632 million debt load through the Chapter 11 process.
However, the company, which lost $221 million in fiscal 2007, won't be able to do it on its own.
"They are going to need an infusion of cash and also hope that the prices of their raw materials don't go up," advises Nancy Rapoport, a University of Nevada-Las Vegas who specializes in bankruptcy law. She says Kimball Hill's assertion that its operations will not be negatively affected by its bankruptcy filing is common among Chapter 11 bankruptcy filers.
"All debtors are optimistic when they start the process. That's just the nature of the debtor," Rapoport says. "If they didn't think there was a chance at all [to save their business], they would have filed Chapter 7 and liquidated it."
With $794 million in assets, including $60 million in cash, at the time of the filing, though, Kimball Hill management obviously believes there is such a chance.
In terms of new loans or restructuring old debts, the decision to file Chapter 11 will probably help Kimball Hill. "Some lenders would rather lend to a company in bankruptcy" because they feel such a firm is more financially stable than one tottering on the edge of bankruptcy, Rapoport explains. Filing also essentially freezes the payment status of debts and bills owed before the filing date, so "it lets you accumulate new cash quickly."
That's important for Kimball Hill. The company had $60 million in cash when it filed, but that was not enough money to meet its debt obligations and continue operations, says Maya Pagoda of Sitrick and Co., a public relations firm assisting Kimball Hill with the reorganization news. (Sitrick and Co., which specializes in "reputation management," has handled communications for numerous Chapter 11 filers, including US Airways.)
Rapoport says companies may also file for bankruptcy if they are facing lawsuits in multiple states. "The beauty of bankruptcy is that it throws everything into a single court," she says. This streamlines the process and also protects a company against being knocked out by a single court judgment that results in the loss of valuable assets.
However, Pagoda says that is not the situation with Kimball Hill. "This is not a matter of litigation," she says. "This is strictly a financial restructuring."
Kimball Hill says it hopes to complete its reorganization plan within 90 days.
One person who hopes that restructuring happens quickly and successfully is Robert Blair, president of Lifestyle USA Design in Houston. His firm does interactive features and graphics such as floor plans and renderings for builders' Web sites.
Those builders included Kimball Hill, which currently owes Blair's company more than $11,000, making Lifestyle USA Designs one of the builder's largest unsecured creditors.
Blair has been in a similar position before. "We've been in business 27 years, and we were with U.S. Home [which merged with Lennar] when they went through their bankruptcy," he says. "In the end, it turned out to be a good thing. We got paid, and we continued to do work for them."
He plans to do the same with Kimball Hill. "Will I keep working for them with the hope I get paid? Yes," Blair says. "They're a big client and they've fallen on hard times."
Alison Rice is a contributing editor to BUILDER Online.