William Lyon Homes is tapping into $206 million from a real estate investment group to restructure its debt and provide capital for general operations and potential land deals.
The cash is coming through Colony Capital and Colony Financial, a newly formed real estate finance company focusing on buying, originating, and managing commercial mortgage loans. Colony Financial itself will fund $50 million of the loan with $156 million coming from other investment funds managed by Colony Capital.
Colony Capital captured headlines in May 2008 after it forestalled the foreclosure auction of Michael Jackson's Neverland by buying the $24.5 million loan, which was in default.
William Lyon's loan is set to mature in five years. It is a senior loan and secured by William Lyon Homes' assets. It carries a 14% interest rate plus fees that can change under various repayment scenarios.
"Colony's excellent reputation and long history of success in real estate financing make them the ideal partner and this transaction has laid a foundation for a strong relationship," Gen. William Lyon, CEO of William Lyon Homes, said in a prepared statement.
The company has said it plans to use the loan's first installment of $131 million to buy back some of its senior bond notes at a discount. The company is purchasing $23.3 million of its notes that have a 10.75% interest rate for $16.3 million, $31.6 million of 7.625% notes for $22.1 million, and $17.6 million in 7.5% notes for $12.3 million plus accrued interest.
But the company may do more than pay off old debt with the new loan. There would be enough cash left over to take advantage of land deals.
"The liquidity provided by this facility provides William Lyon Homes with the resources and the flexibility to capitalize on opportunities in the marketplace and to continue our strategic initiatives," said Bill H. Lyon, the company's COO, son of the General and heir apparent to the Newport Beach, Calif.-based company.
Likewise, Thomas J. Barrack Jr., founder, chairman, and CEO of Colony Capital, was happy with his company's investment.
"With more than 50 years of experience in the home-building industry, William Lyon Homes has built an envious operating record through multiple housing cycles," said Barrack. "We believe in the long-term fundamentals of the industry and are encouraged by the recent improvement in housing fundamentals. General Lyon has built a superb company and a best-in-class management team, which is well-positioned to take advantage of extremely attractive opportunities the industry has not seen for several decades."