On April 2, a bankruptcy court in California is expected to approve Ennis Homes’ plan for reorganization. Brian Ennis, owner of this Portersville, Calif.-based builder, says his company should be out of bankruptcy 20 days later.
“We’re going to emerge a much smaller company,” Ennis told BUILDER last week. “And our go-forward strategy is to stay small and stay humble.” At one time, the company was building in 18 subdivisions and had 125 employees; it currently has seven active projects and 25 associates.
The company has secured an $8 million revolving credit line and $12.2 million construction loan from Bank of America to complete about 300 homes in four neighborhoods: Eagle Rock in Bakersfield, Cottonwood Estates in Tulare, and Eagle Glen and Madison Crossings in Visalia. United Security Bank is providing financing for Ennis Homes to build out 38 lots at Williams Ranch in Portersville. And the builder will complete two other projects—called Arbor Park and New Expressions—through joint-venture agreements with investors.
Its reorganization plan estimates that Ennis Homes will come out of Chapter 11 with $62 million in bank debt (down from $110 million when it went in); $275 million in unsecured claims with priority status and between $30 million and $63 million in unsecured claims without priority.
Ennis says his company will pay off its indebtedness over several years primarily through house sales. The plan projects that Ennis will sell between 133 and 287 homes per year in each of the next five years, including somewhere between 125 and 200 units in 2010 (see cash flow chart for out years below). While in Chapter 11, the company negotiated the sale of five other projects for $17 million, the proceeds from which went to Wells Fargo.
Last year, Ennis Homes closed 25 homes that generated $5 million in sales. It didn’t build any new houses but completed some partially built units and converted some models for sale.
Ennis certainly thought his company would be out of Chapter 11 sooner than this.
“The last 13 months have been very frustrating and have tested my patience to the limit,” says Ennis. “I’ve learned ‘quick’ is a relative term.”
A Bank of America loan that he had expected to close in April 2009 hit a snag and had to be rewritten when he had sold some land to reduce debt. That delay cost Ennis Homes $1.5 million in salaries it paid employees to keep them on in anticipation of being able to start building again sooner. (Ennis Homes didn’t close its loan with BofA until this month.)
Another complication in Ennis' attemptto secure new financing arose from another bank lender. This lender was trying to block Ennis Homes from operating Ennis Land Development, a sister company. As a result, the land development division filed Chapter 11 on June 17. And last January, Ennis Homes and Ennis Land Development merged.
Ennis claims this was the first time that the U.S. Bankruptcy Court in California’s Eastern District has approved the merger of two companies in bankruptcy. (Had the two companies not been consolidated, Ennis Homes would have had a $64 million unsecured claim against Ennis Land Development.)
While he says this ordeal hasn’t been fun, Ennis takes some consolation in the fact that his company is still standing at a time when “a lot of our competition packed up their tent and moved on.” He adds that even though his company has construction financing in place, it will continue to use close-of-escrow payments with its trades, which Ennis hopes “will help create peer pressure among the trades to keep quality high and keep (work) on schedule.”
John Caulfield is senior editor for BUILDER magazine.
Ennis Homes will reduce debt through selling houses.
Year Cash Inflow Operating Expenses/Debt Reduction Net Income
2011 $28.3 million $27.6 million $23,300
2012 $36.2 million $35.4 million $44,200
2013 $45.6 million $44.8 million $90,300
2014 $50.7 million $49.9 million $41,400
Source: Ennis Homes’ Disclosure Statement, filed Feb. 3, 2010