William Lyon Homes, burdened with heavy debt, dwindling cash, and negative net worth, announced it has reached agreements with its debt holders that will recapitalize the home builder and write-down some of its debts.
“We have reached a major milestone with our key stakeholders toward achieving our goal of substantially reducing our debt burden," CEO Gen. William Lyon said in the announcement of the agreements. “We are confident these efforts, supported by our secured lender, majority stakeholders, and the Lyon family, will strengthen the company to the benefit of our home buyers, development partners, and employees.”
The company’s senior lenders, a partnership of Colony Capital and Colony Financial, which loaned the builder $206 million two years ago, along with 65% of the holders of its notes and the Lyon family, have agreed to support a reorganization plan that would infuse the cash-poor company with $85 million and reduce its $489 million in debt by about 37%. The plan also reduces the builder's heavy annual interest expense, which is $54.4 million, by about 45%, the company announced. The plan is expected to be completed by the end of the first quarter in 2012.
Under the agreement, the Lyon family would invest $25 million in return for 20% of the $10 million of new stock and 9.1% of the $50 million in new convertible stock.
The company’s senior secured lender, the Colony partnership, would receive a note for $235 million due in three years with a 10 1/3% interest rate. The three senior note holders agreed to replace their $284 million in senior notes for $75 million in secured notes due in five years at an interest rate of 12% and 28.5% interest in the company after the reorganization.
“Once the recapitalization is completed, William Lyon Homes’ capital structure will provide the foundation for sustainable profitability and better position the company to meet the challenges of our industry head on,” said William H. Lyon, chief operating officer and son of founder General Lyon. “We believe this plan will put William Lyon Homes on a strong financial footing to grow the business.”
But the company isn’t waiting for the plan to start growing. It closed on a 27-acre parcel of land in Palo Alto and Mountain View, Calif., called the Mayfield Mall with entitlements for 303 units where it plans to build four single-family attached and detached communities. The purchase was financed by a subsidiary of the company’s largest note holders with the consent of the company’s senior secured lender, the builder said.
Teresa Burney is a senior editor for Builder magazine.
Learn more about markets featured in this article: Los Angeles, CA.