Newport Beach homebuilder William Lyon Homes announced a debt restructuring deal that leaves co-founder and namesake William Lyon with a minority share in the business that had been almost entirely in family hands.
Under the deal, which will be completed around the end of March, the Lyon family will end up with a 20% interest in the homebuilding firm, leaving the balance in the hands of bond holders.
The deal also leaves the company with about $310 million in outstanding debt, but the bulk of that will be at a reduced interest rate.
In addition, the Lyon family and investors will pony up $85 million in additional capital, $25 million of which will come from the Lyons.
Lyon, a retired Air Force Reserve general, continues to serve as chairman of the Lyon company board of directors. The current management team, including Chief Operating Officer Bill H. Lyon, the general's son, will remain in control.
"Basically, what they've done is they've restructured their debt by getting some of their debt holders to convert their debt to equity, and they've raised some capital," said Irvine housing consultant John Burns. "So they fixed their balance sheet."
Burns said that Lyon Homes has become just the latest company with the founding family ending up with a minority share because of the continued housing slump. For example, Burns noted that Bob Toll and Don Horton no longer are majority shareholders of the Toll Brothers and DR Horton building firms.
"Almost every homebuilder I know has had to restructure their balance sheet," he said.
What's surprising is how well this restructuring works out for the Lyon family, since they managed to raise fresh cash to shore up the company.
Gen. Lyon, 88, touched off a stock bidding war in a much publicized move to take his publicly traded homebuilding firm private in 2006. Lyon, who owned or controlled about 75% of the stock at the time, bought up virtually all the outstanding shares of stock, leaving the firm in the hands of family members and company insiders.
The Lyons have held virtually all the shares of the firm since then " until now, if this restructuring goes through.
Burns noted that in recent months, senior notes backed by Lyon Homes debt had been trading at a discount on Wall Street.
Under the provisions of the deal:
The Lyons will put up $25 million and hold stock shares representing ownership of 20% of the company.
Investor Tom Barrack's Colony Capital and Colony Financial " which arranged for up to $206 million in fresh funding for William Lyon Homes in October 2009 " would see its loan agreement amended into a new $235 million senior secured term loan facility. Interest on the new loan will be reduced to 10.25%, down from the original 14%.
Senior note holders would exchange about $284 million of existing debt for $75 million in secured notes at an interest rate of 12%, according to the plan. In addition, they'll receive stock giving them ownership of 28.5% of the company.
An unnamed investor will raised an additional $60 million in cash and receive stock giving them ownership of 51.5% of the company.
Existing senior management - including Gen. Lyon as CEO, Bill H. Lyon as COO, and Matthew R. Zaist as executive vice president - will continue to run the company. The Lyons will remain on the board. Lyons will get the rights to buy an extra 9% of the company stock.
"This is a real positive story for the company," Burns said. "Being able to raise capital like that is fantastic."
Lyon Homes had been juggling its debt payments to navigate tough conditions in the homebuilding business . Twice since summer it took extra time to make debt payments - and its tangible net worth had dipped below zero.
Company officials couldn't be reached for comment.
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