WCI Communities files Chapter 11 bankruptcy, terminates convertibles exchange offer

By Caroline Salls

Pittsburgh, Aug. 4 - WCI Communities, Inc. and about 130 of its wholly owned subsidiaries filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware to restructure their debt and capital, according to a company news release.

"The company, with all diligence, has attempted to avoid a bankruptcy filing," board of directors chairman Carl C. Icahn said in the 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.

"This was confirmed when certain holders of the company's $125 million convertible notes informed the company that they rejected its exchange offer and instead insisted on being paid in cash in full on August 5, 2008."

Along with its Chapter 11 filing, WCI Communities said it is terminating its offer to exchange $125 million of 4% contingent convertible senior subordinated notes due 2023.

WCI Communities said it will instruct the exchange agent to return the notes, which were tendered for their exchange, to the tendering bondholders.

In advance of the filing, the company said it reached a definitive agreement with its principal secured lenders under which the company will have access to more than $50 million of cash on hand to continue operating its business on an interim basis.

WCI said it has received a proposal from some of its senior lenders to provide an additional $100 million of excess liquidity through a debtor-in-possession loan facility.

The company said it is in advanced stages of negotiations with the lenders regarding the terms of the DIP financing proposal.

"While WCI remains cash-flow positive and our asset base is strong, our ongoing operations have been adversely impacted by the continuing downturn in the real estate sector and the overall economy," interim president and chief executive officer David L. Fry said in the release.

"Like other large homebuilders across the country, WCI continues to experience declines both in pricing and the sale of new homes and condominiums, as well as dramatic increases in cancellation rates.

"As a result, we need to restructure our debt and bring our capital structure in line with today's marketplace realities."

WCI said its Watermark real estate brokerage, which does business as Prudential Florida WCI Realty, as well as its WCI Mortgage business and other joint ventures in which WCI Communities is a partner, were not included in the filing.

New CEO

In addition, the company said Jerry L. Starkey, who served as WCI's chief executive officer since 2005, will leave the company effective immediately. Starkey will continue to be available for consultation as necessary.

Fry has been appointed by the board to act as interim president and chief executive officer, pending the selection of a permanent CEO.

According to the release, the board intends to begin its search for a new chief executive officer and president immediately. In addition to his new responsibilities, WCI said Fry will continue to be responsible for WCI's operations nationwide.

WCI said it has requested court approval to continue to pay the full amount of its dues and deficit obligations to its various community associations and clubs, as well as to establish procedures to pay valid lien claims as they come due and to sell homes free and clear of all liens to ensure that ongoing home sales activities continue uninterrupted.

Additionally, the company said it has asked the court to confirm that all funds deposited by buyers in First Fidelity, the company's title insurance company, can be distributed at closing.

The company said it has also taken steps to ensure that all of its customer programs continue without interruption, including its comprehensive warranties. WCI said it is in final negotiations with one of its present insurers, AIG, to provide a supplemental warranty at no cost to those WCI Communities homebuyers with contracts of sale currently in force, as well as those customers who enter into new contracts with the company.

Debt details

According to court documents, WCI had $2.178 billion in assets and $1.915 billion in debt at June 30.

The company's largest unsecured creditors include:

• The Bank of New York, trustee, with a $200 million claim for 9 1/8% senior subordinated bonds due 2012, a $200 million claim for 6 5/8% senior subordinated bonds due 2015, a $125 million claim for 7 7/8% senior subordinated bonds due 2013 and a $125 million claim for 4% contingent convertible senior subordinated bonds due 2023;

• JPMorgan Chase Bank, NA, trustee, with a $100 million claim for junior subordinated bonds and a $65 million claim for junior subordinated bonds;

• Key Bank NA, Cleveland, with a $10.24 million swap claim; and

• Regent International Hotels, Inc., Minneapolis, with a $2.99 million pre-opening expenses claim.

WCI is a Bonita Springs, Fla.-based homebuilding and real estate services company. Its Chapter 11 case number is 08-11643.

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