WCI Communities announced it will be exit bankruptcy Monday, Aug. 31, newly freed from $2 billion in debt and other liabilities, just over a year after it retreated into Chapter 11.
Here are the details of the plan confirmed by the U.S. Bankruptcy Court's Delaware Division and supported by a majority of its creditors, including senior secured lenders as well as the official creditors’ committee:
The company’s senior secured creditors will get 95% equity in the company in return for $450 million in new debt to be issued.
Unsecured creditors will receive interest in a litigation trust (which is basically any returns expected from various lawsuits) and an initial 5% stake in the company, which could grow to 35%, depending on future operations.
All the company’s stock disappears under the plan, with its holders left with nothing to show for their investment but their defunct stock certificates. The stock became worthless Friday, Aug. 28.
“Given the fact that we are experiencing one of the most challenging real estate markets and economic environments in recent history, this is a truly remarkable achievement,” WCI Communities CEO David L. Fry said in a written statement. Fry will stay on as president and CEO, a position to which he was appointed during the bankruptcy process. Fry has been with WCI since 1995, serving as chief operating officer before being named to the interim CEO position last August.
“WCI, along with its major constituent groups, have worked together to fashion a plan that allows us to emerge as a de-leveraged lifestyle community developer and land holding company and ensures that recoveries are allocated fairly among the company’s stakeholders,” Fry said. “The flexibility granted under the plan allows WCI to navigate its business during these unprecedented times and beyond. I am confident that the company and its stakeholders will succeed together.”
No mention was made in the announcement whether WCI will continue as a builder, just that it will operate as a developer and land holding company.
WCI’s fate was sealed by its products, its market, and its debt. Though the company had diversified in recent years in terms of product (more single-family homes) and geography (an expansion into the Northeast and Mid-Atlantic), WCI's primary product was high-priced high-rise Florida condominiums. When the downturn hit, the bottom fell out of that market for WCI; for the first time ever in the company's history, the builder's well-heeled condo buyers walked away in droves, forfeiting 20% downpayments rather than continue with the purchase. In one quarter, WCI actually recorded negative sales.
As the market continued to plummet, WCI, which was already burdened with a high debt-to-equity ratio of more than 70%, lacked the cash to survive such a downturn. Its predicament rose to high drama when billionaire Carl Icahn took a 14% stake in the company in January 2007. By March of that year, he offered all takers $22 a share for their stock, but withdrew his offer within a month when few takers emerged and it had become clear that the stock price was in a freefall.
Teresa Burney is a senior editor for BIG BUILDER and BUILDER magazines.