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2008-08-21

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stories: sltrib.com, trollerbk.com

Update, 2008-08-27(2): No thanks to PACER, key documents of the Woodside case have finally become accessible, and key facts have been revealed showing that this is indeed a full Chapter 11 bankruptcy now. A synopsis from our forum:

Today, 8/27/08 Bankruptcy Judge Carroll signed an order in Case No 6:08-bk-20682-PC which is to be effective in all 185 involuntary bankruptcy cases. That order confirms the binding nature of a stipulation between Woodside Group LLC and its subsidiaries, the 5 insurance companies who filed the involuntary bankruptcy petitions and JP Morgan Chase as agent for the lenders on the senior unsecured notes. That Stipulation, which is Document 17 on the Docket for Case No 6:08-bk-20682-PC, says:

(1) None of the Woodside entities intends to contest the creditors allegations in the Involuntary Petitions that the 185 entities, including Woodside Group, LLC, Woodside Homes and Pleasant Hill Investments (Woodside's financing arm) are insolvent;

(2) All 1855entities will file consents with the Bankruptcy Court by September 16, 2008, indicating that they consent to be Chapter 11 Debtors. The "Relief Date" upon which the 185 Woodside entities will become Chapter 11 Debtors will be September 16, 2008. The Bankruptcy Court will issue orders finding that the allegations of insolvency in the Involuntary Petitions are proven by that admission by the debtors.

(3) From today's date, August 27, 2008, all 183 Woodside entities will operate as if they are Chapter 11 Debtors, e.g. not entering into transactions outside of the ordinary course of business, opening and using new debtor in possession bank accounts at JP Morgan Chase, and doing their accounting under the Bankruptcy Court's accounting rules. They will be able to pay trade creditors in the ordinary course of business through 9/16/08.

...

In light of the above we are retaining our "implode" classification for Woodside.

Also note the full creditors list:

  • Metropolitan Life - $35,500,000
  • AXA Equitable Life - $40,000,000
  • John Hancock Life - $51,900,000
  • New York Life - $18,500,000
  • Security Life of Denver - $10,000,000
  • JP Morgan Chase, in its capacity as Administrative Agent on a $330,000,000 "non-contingent unsecured debt", joined, for lenders: Bank of America, Wachovia, Guaranty Bank, Washington Mutual, Regions Bank, Bank of the West, Union Bank of California, Wells Fargo, Comerica Bank, Suntrust, Compass Bank, First Commercial Bank, Key Bank and JP Morgan Chase.

That would be a total of almost $486 million being demanded by some very big names.

See more excerpts and analysis from the bankruptcy filings at the forum.

A trusted source also expressed the following thoughts to us on the case:

All 185 Woodside Homes related debtors against whom involuntary bankruptcy petitions were filed, including the parent company Woodside Group, LLC and the financing arm Pleasant Hill Investments, admitted by way of stipulation today that they are insolvent. They will begin operating as if they are Chapter 11 debtors in possession immediately. The "effective date" of their legal Chapter 11 debtor status will be 9/16/08.

Apparently, it will take that much time for the 185 debtor entities' consents and admissions to be prepared, and the judge to sign 185 orders finding that the entiites are insolvent and are Chapter 11 debtors.

The interesting question is whether the $312 Million + $372 Million in unsecured debt held by the lenders who prosecuted the Chapter 11 case is the only debt of the 185 entities, or whether they have A&D loan and construction loan debt as well.

I cannot see how the 185 debtors can ask the Bankruptcy Court to approve debtor-in-possession financing until after September 16, 2008, so it will be interesting to see if this 2+ week delay will work from a practical point of view.

The other interesting question which is up in the air is whether any payments made by Woodside entities to trade creditors, in the ordinary course of business during this 2+ week period, will be preferences. Though the parties may think that the payments will not be preferences, based upon their stipulation, the OTHER unsecured creditors of Woodside may think otherwise. I am sure there will be a lot of disruption and hysteria in the conduct of Woodside's business during the next two weeks regardless of the stipulation.

Interesting questions indeed!

Update, 2008-08-27: As reported by TheStreet.com, Woodside is not formally in bankruptcy yet as a result of this filing by creditors. They have 20 days from August 20 to respond. Stay tuned. Woodside comments from the article:

"The company is working with both the note holder and bank groups and will be presenting its position to the judge requesting an orderly resolution on Wednesday," Mercer said. She refuted the Tuesday report from Standard & Poor's LCD News that said Woodside had already filed for Chapter 11.

Original writeup, 2008-08-26:

Word has come to us today (8/26) that top-25 builder Woodside Homes has been forced into involuntary bankruptcy (Chapter 11). Assets and liabilities are of yet unknown. The relevant actors are described in this excerpt:

Woodside Homes Corporation, Filed by Petitioning Creditor(s): Metropolitan Life Insurance Company (attorney Susy Li), Security Life of Denver Insurance Company (attorney Susy Li), AXA Equitable Life Insurance Company (attorney Susy Li), John Hancock Life Insurance Company (attorney Susy Li), New York Life Insurance Company (attorney Susy Li). (Attachments: # 1 E-Filing Declaration and Summons)(Li, Susy) (Entered: 08/21/2008)

That is quite a high-powered roster of irate insurance industry investors.

From the builder's home page comes a brief description of their history and activities:

New Homes by Woodside Homes in Utah, Arizona, Utah, California, Nevada, Minnesota, Texas, Florida, Washington DC. Woodside Homes was founded in 1977 with one simple objective in mind: build a new home with lasting value, integrity and quality while providing excellent service.

As a leading new home builder in each division (Arizona Phoenix Area, California Sacramento Area, Modesto Area, Fresno-Visalia Area, Southern California Area, Colorado Denver Area, Colorado Springs, Florida Jacksonville Area, Daytona Area, West Palm/Treasure Coast Area, Tampa Area, Minnesota Minneapolis/St. Paul Area, Nevada Las Vegas Area, Reno, Texas San Antonio Area, Utah Salt Lake Area, Washington DC Area Virginia, Maryland, Delaware) Woodside Homes has built over 25,000 new homes and is currently building in Arizona, Northern, Central and Southern California, Colorado, Florida, Maryland, Minnesota, Nevada, Texas, Utah and Virginia.

The 2007 Builder100 has profile information on Woodside, such as the fact that in 2006 (this appears to have been their peak) they had over 3,300 closings, the CEO is Chip Nelson, and they are considered Northeast-centric (despite the fact their HQ is given as Utah).

We will seek out more details in the coming days (if you know anything, please contact us). However, this is a disturbing development for those who are once again claiming the market has bottomed. Around here our position for a while has been that the worst of the major builder implodes has not been seen, as creditors have been willing to drag things out till the last minute (or later).

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Comments:

Aristotle at 14:58 2008-08-27 said:
To anyone who believes that Woodside Homes can dig itself out of an involuntary Chapter 11 bankruptcy, dream on. In 30 years, I've never seen a debtor who is the target of a Chapter 11 involuntary get it dismissed. Creditors lawyers are very careful to make sure they are not wrongfully filed.

The interesting story here will be what Woodside Homes management did to so royally peeve all of these insurance company creditors. Usually creditors are too cheap and lazy to do an involuntary...so the story of what happened will be very, very interesting. Permalink

Alan Greenspan at 18:48 2008-08-27 said:
Last I checked, NVR (a top 25 homebuilder based on the East Coast) has more successfully navigated this downturn than any other large builder. And, they went through a Chapter 11 Bankruptcy in the early 1990's. Permalink
Aristotle at 16:33 2008-08-29 said:
The print press in communities with substantial connections to Woodside Homes many operations are starting to report on the involuntary bankruptcy cases. A few of those newspapers have simply reported Woodside Homes' public relations spin, i.e. that they will voluntarily file Chapter 11 on 9/16/08. Three newspapers have done a fairly good job of reporting, the Salt Lake Tribune, The Arizona Republic and the Riverside Press Enterprise. Each of those newspapers' stories disclosed that the Woodside entities were involuntarily dragged into bankruptcy. Two of the stories have unearthed background information which gives hints at why the creditors took the unprecedented step of filing involuntary bankruptcy petitions against 185 entities.

From 8/29/08 Salt Lake Tribune article on Woodside Homes:

"Woodside's agreement not to contest the bankruptcy followed an Aug. 21 motion by the noteholders to limit Woodside's business activities while U.S. Bankruptcy Judge Peter Carroll considered their involuntary bankruptcy request.

Woodside reorganized its corporate structure and triggered tax losses that benefited Woodside's equity holders, mainly Ezra Nilson and his family, without informing creditors during debt restructuring talks, the noteholders said in their filing.

The noteholders formed the view that a restructuring with the current equity holders and the current senior management team is not possible," according to the filing."

From the 8/28/08 Arizona Republic Story:

"Don Gaffney, a Phoenix attorney representing JP Morgan Chase, said Woodside and its many affiliates owe his client $335 million in unpaid debt. The builder owes another $370 million in bond and note debt to a list of investors that reads like a who's who of life insurance companies.

Creditors include Metropolitan Life Insurance Co., John Hancock Life Insurance Co., New York Life Insurance Co., and two others.

Gaffney said there also might be other debt owed to various contractors.

In addition to the scores of Woodside entities named in the bankruptcy proceedings, Gaffney said there are several more not yet included because attorneys still are trying to connect them to the parent company's debt.

"Woodside homes has a very large and complicated organizational chart," he said. "There are well over 200 entities, all indebted to these creditors."

Obviously, homebuilders and their owners negotiating with honesty, good faith and full disclosure, and not engaging in manipulations hidden from major creditors is more likely to produce a favorable work out and continued funding relationship. These major lenders concerted attack on the management of Woodside Homes provides a cautionary tale for public and private homebuilders playing in the mega million dollar big leagues.

Unlike other mega million dollar work outs, in and out of Chapter 11, in which major homebuilders have participated this year, apparently there is no debtor in possession financing in the offing, to be provided by the creditors who filed the involuntary proceedings. The Salt Lake Tribune also reported:

"Woodside continues to build and sell homes and pay employees and subcontractors, said Jennifer Mercer, a crisis management professional hired by the company to serve as its spokeswoman.

She said Woodside doesn't believe it will need a loan to fund operations during Chapter 11.

"The company has ample cash on hand to continue their operations," Mercer said."

Time will tell if that claim is true. Permalink

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Important: This company is on our list of builder operations that have "imploded" (see also ailing lenders). This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid declines in enterprise value; or abnormal "bail-out" by corporate parents or peers in order to continue to operate. The builders may be residential or commercial.