Icahn's WCI Communities files Chapter 11 bankruptcy
Carl Icahn's WCI Communities became the latest casualty of the housing market crisis Monday, filing for Chapter 11 bankruptcy protection after the homebuilder failed to get additional financing in the face of massive losses.
The company was known as Westinghouse Communities Inc. until 1995, when it was divested by Westinghouse Electric Corp. as part of the Pittsburgh company's restructuring. It sold Westinghouse Communities to a partnership led by a Florida developer and used the $556 million in proceeds to help acquire CBS Corp.
Westinghouse Communities was created in 1966 when Westinghouse bought Coral Ridge Properties, a southeast Florida developer, and renamed it. Over the next three decades, the company built luxury communities on Florida's Gulf and Atlantic coasts
Westinghouse real estate development goes back to the 19th century. George Westinghouse acquired land in Turtle Creek Valley in the 1880s and created one of America's first factory towns -- Wilmerding -- centered on Westinghouse Air Brake Co. The borough contained company factories, homes for the Westinghouse workers and parks for their recreation.
Icahn, chairman of WCI's board, said the filing was necessary because the Bonita Springs, Fla.-based developer's entire $1.8 billion debt may soon be in default. Icahn said this was confirmed when some holders of $125 million convertible notes insisted on being paid in cash in full.
WCI fired Chief Executive Jerry L. Starkey and replaced him on an interim basis with David L. Fry.
"We need to restructure our debt and bring our capital structure in line with today's marketplace realities. We believe Chapter 11 provides the most efficient and timely process for accomplishing this," Fry said.
Day-to-day operations, including selling, building and delivering homes, will continue, and employees will still come to work and be paid, the company said.
WCI and about 130 of its subsidiaries filed petitions to restructure their debt and capital. 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.
WCI's real estate brokerage, which does business as Prudential Florida WCI Realty, and its mortgage business were not include in the filing.
WCI Communities builds tower residences and traditional homes in upscale communities in the mid-Atlantic and Northeast, but most of its business is in Florida, where the housing market has struggled mightily. The developer had been trying to stay afloat in the face of weak demand, flagging prices, canceled orders and growing inventory.
Last week, the homebuilder reported a second quarter loss of $100.2 million, or $2.38 a share, compared with a loss of $33.2 million, or $1.12 a share, for the same period a year ago.
WCI had received multiple loan extensions from two banks -- Bank of America Corp. and KeyCorp's Keybank -- as it sought flexibility to pay interest on its debt. The banks agreed in January to new terms on WCI loans and credit.
Icahn was named chairman last September after he attempted to take over the board and force the sale of the company. He said at the time that he viewed WCI as "a unique vehicle to take advantage of the current market disarray."
The company said yesterday it agreed with its principal lenders on terms for access to over $50 million of cash to continue operating on an interim basis. A motion for approval has been filed with the bankruptcy court, the company said.
WCI is negotiating a lender proposal for another $100 million in cash.
Trading of WCI shares was suspended.