Florida Developer WCI fights for life

South Florida Foreclosure News

Article Abstract: One of the largest Florida-based real estate development companies has filed for Chapter 11 bankruptcy.  WCI real estate development is more than $1.9 billion in debt.  Tremendous financial loss in the hundreds of millions is mostly due to exponential growth during the real estate boom only to see a dramatic decline in new home prices.   In order to avert foreclosure on many of the projects and on the large debt, the company must get approved for a repayment loan in the coming weeks.  For the full Florida foreclosure and real estate news article, please continue reading below:

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With Chapter 11 bankruptcy protection in place, WCI Communities Inc., now must look for ways to pare more than $1.9 billion in debt while keeping its doors open.

Bonita Springs-based WCI, a cornerstone developer in establishing Southwest Florida's gated golf course and condo retirement lifestyle, filed Chapter 11 bankruptcy protection Monday in Delaware, where it is formally incorporated.

The company also announced that Chief Executive Officer Jerry Starkey, a 20-year veteran of WCI and its predecessor company, has left the company. David Fry, 48, the former chief operating officer, is the interim chief executive officer and president.

Companies that file for protection under Chapter 11 of the U.S. Bankruptcy Code seek a court order to prevent creditors from immediately seizing the company's assets.

In a statement, company executives said day-to-day operations "continue as usual."

The company already has reached a lender agreement, pending approval from the bankruptcy court, for $50 million to continue operating its business. An additional $100 million loan is being negotiated, the company said, and would need court approval.

That money is likely to be used to finish condos and single-family homes under construction and keep the doors open at the company offices, said Jack McCabe, a real estate consultant based in Deerfield Beach. Beyond that, the company must start working on its larger debt. That job may be undertaken by a court-appointed official known as a receiver.

"I would expect the court will appoint a receiver, who will probably spend the next 60 days trying to determine what they are going to sell and what they can do to negotiate lower debt," McCabe said. "The big question is will they be able to reorganize under Chapter 11, survive and come out from bankruptcy."

Excluded from the filing is the company's Watermark real estate brokerage, which does business as Prudential Florida WCI Realty, as well as its WCI Mortgage business and certain other joint ventures in which WCI is a partner.

The company had been facing a deadline to swap $125 million in notes payable today with longer term debt, but the effort failed and the company filed for bankruptcy in a Wilmington, Del., court.

Trading of the company's stock was halted on the New York Stock Exchange at 9:31 a.m. with shares at $1.27, although some trades may still have trickled in.

Delisting procedures to remove the stock from the exchange have begun and have been forwarded to the Securities and Exchange Commission, NYSE regulations spokesman Scott Peterson said.

In a news release, Chairman Carl Icahn said the filing became unavoidable because of debt coming due today.

"The company, with all diligence, has attempted to avoid a bankruptcy filing," Icahn said in a news release. "However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default."

Icahn said "certain holders" of the notes declined the exchange offer and demanded payment.

That statement seemed to blame the note holders for demanding payment, said Vicki Bryan, senior high yield analyst at Gimme Credit, an independent research service on corporate bonds.

"This is no time to be petty and blame people for expecting to be paid," Bryan said. "These assets are eroding by the day and there is no point in waiting."

If there is any blame, it belongs with the company's board, prior to Icahn taking a seat about a year ago, for rejecting Ichan's $22 per share purchase offer for the company in 2007, Bryan said.

John Teerling, a part-time resident of Gulf Harbour, said he is concerned about the ongoing operation of the community.

"It's been getting worse year after year, and now that they are in bankruptcy, who knows how bad it is going to get," Teerling said.

Teerling sued WCI in February after WCI officials refused to sell him the remaining 40 memberships in the upscale south Fort Myers country club community for $1.4 million - the full asking price of $35,000 apiece.

That suit is still pending.

"All we want is for WCI to get out of there and let us run the club," he said. "If they are looking to sell things off, maybe that will help us."

Teerling said he hadn't had any dealings with Fry, the interim CEO.

Fry joined WCI in 1995 and was appointed as chief operating officer in November 2007. In addition to his new responsibilities, Fry will continue to be responsible forWCI's operations nationwide.

Starkey had been with WCI's predecessor company, Florida Design Communities, since 1988. He had been the CEO since 2005.

"Day-to-day operations will continue as usual, while we work with our stakeholders to restructure the balance sheet," Fry said in a news release. "We will continue to sell, build and deliver homes without interruption. Construction and sales activities will continue; employees will come to work and be paid."

The company had about 2,000 employees at the end of 2007, down from a peak of more than 3,900 in 2006. A current number was not available Monday and calls and e-mails to the corporate offices were not returned.

Last week, WCI reported a net loss of $100.2 million, or a loss of $2.38 a share, for the three months ended June 30, compared with net loss of $33.2 million, or a loss of $1.12 a share, in the same quarter a year ago.

For the first six months of the year, the net loss was $184.3 million.

The company, known for its luxury home and condominium projects, has seen losses escalate as the real estate market has soured and contract cancellations have exceeded new orders. The company lost more than $500 million in 2007 as it wiped hundreds of millions off its books to reflect the falling value of the company's land, unsold homes and condominiums.

WCI's bankruptcy filing follows similar filings by Levitt & Sons in November and Tousa in January.

In Southwest Florida, WCI is the developer of communities that include Gateway, Pelican Landing and Gulf Harbour. It also has operations in the mid-Atlantic states and the Northeast.

 

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