William Lyon Homes makes pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, Dec. 19 - William Lyon Homes made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of Delaware after receiving overwhelming support from its senior lender and senior noteholders for its pre-packaged plan of reorganization, according to a company news release.

The company said more than 93% in number and more than 97% in amount of the senior noteholders voted to approve the plan, as did its senior secured lender. The Lyon family also supports the plan.

"Today's action enables us to efficiently restructure our debt and create a capital structure that will provide a foundation for future growth," chief executive officer General William Lyon said in the release.

"Over the last several months we have worked closely with our stakeholders to develop and implement our plan to ensure William Lyon Homes remains a leader in the homebuilding industry."

According to the release, the plan approved by the company's stakeholders provides $85 million in new capital investments and strengthens William Lyon Homes' long-term capital structure by eliminating short-term debt maturities and reducing interest expense.

Specifically, about $180 million principal amount of debt will be eliminated as part of the recapitalization plan, resulting in a 37% reduction in overall debt, the release said. Annual cash interest expense will be reduced by nearly $25 million or roughly 45% of current levels.

Plan terms

Under the pre-packaged plan:

• The Lyon family will invest $25 million in exchange for 20% of the reorganized company's common equity and warrants for an additional 9.1% of common equity;

• The company's senior secured lender will receive a $235 million secured note;

• Senior noteholders will exchange $284 million principal amount of existing notes for $75 million of secured notes and will receive 28.5% of common equity;

• The company will propose a rights offering to be backstopped by one of its largest noteholders for $10 million of common equity and $50 million of new convertible preferred equity, together representing 51.5% of the common equity.

According to an 8-K filed with the Securities and Exchange Commission in November, the convertible preferred equity will carry a preferred dividend of 4% cash and 2% PIK, but the company can pay the entire amount in kind.

The preferred equity will be convertible on a 1 for 1 basis into class C common shares, collectively representing 51.5% of the capital stock of the company; and

• In connection with the exchange and rights offering, the existing equity of the company would be canceled, and William Lyon Homes would issue to the holders of its existing equity, in exchange for a purchase price of $25 million in cash, shares of class B common stock, initially representing 20% of the capital stock, and warrants to purchase an additional 9.1% of the class B common shares at a strike price based on a $325 million equity value of the company, the 8-K said.

DIP financing

In connection with the bankruptcy filing, the company has secured a commitment for a new $30 million credit facility, which will be used to support operations and ensure adequate liquidity during the restructuring process.

ColFin WLH Funding, LLC is the DIP loan agent.

The facility will mature on the earliest of 180 days from entry of the interim order, the completion of a sale of substantially all company assets, the effective date of a plan of reorganization, 30 days after the filing date if a final order has not been entered and acceleration of the DIP loans.

Interest will be Libor plus 800 basis points with a 2% Libor floor.

William Lyon Homes will pay a 2.5% front-end fee and a 0.50% exit fee.

The company is seeking interim access to $15 million of the DIP financing.

Debt details

According to court documents, William Lyon Homes had $593.53 million in total assets and $606.61 million in total debt as of Sept. 30.

The company's largest unsecured creditors are indenture trustee U.S. Bank NA, with a $150.26 million 10¾% unsecured notes claim, a $79.93 million 7½% unsecured notes claim and a $69.35 million 7 5/8% unsecured notes claim, and Irell & Manella, LLP of Newport Beach, Calif., with a $1 million professional fees claim.

Company management

The company said existing senior management, including CEO General William Lyon, president and chief operating officer William H. Lyon and executive vice president Matthew R. Zaist, will continue to manage the company.

The Lyons will remain on the board of directors, with General Lyon continuing as chairman.

William Lyon Homes said it will continue normal business operations during the reorganization process, which is expected to be completed in less than 90 days.

Lyon Communities, a separately owned and operated multifamily real estate company, is not included in or affected by the recapitalization plan and Chapter 11 filing, according to the release.

William Lyon Homes is represented by Pachulski Stang Ziehl & Jones LLP.

The Newport Beach, Calif.-based company designs, constructs and sells single family detached and attached homes in California, Arizona and Nevada. The Chapter 11 case number is 11-14019.

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