Fulton Homes' reorganization plans duel

Creditors in Fulton Homes' Chapter 11 bankruptcy case will be presented with at least two competing reorganization plans on which to cast their votes.

After a grueling, 20-month effort to negotiate mutually agreeable terms, the Tempe-based homebuilder and a group of lenders, led by Bank of America, have submitted substantially different debt-repayment plans for the company's creditors to consider.

The lender group's submission of a competing plan shifts the dynamic of the proceedings from a negotiation effort to a battle for the votes of dozens of Fulton Homes creditors.

The banks' proposed plan would force a much more rapid repayment of the company's debt, with higher interest and less consideration for a $25 million debt owed to Fulton Homes founder Ira Fulton.

Neither plan would require liquidation of the company, as Fulton Homes executives had feared, nor would it threaten their jobs.

"It leaves all existing management and employees in their current positions," Bank of America spokeswoman Shirley Norton said.

Nor would either plan have a negative effect on holders of Fulton Homes home warranties, as they are managed by a separate entity not included in the bankruptcy.

A unanimous vote for either plan seems unlikely, since eligible voters include members of the lender group - comprised of BofA, JPMorgan Chase Bank, Compass Bank and Wells Fargo - as well as company founder Fulton.

The fundamental difference between the bank group's plan, filed Tuesday in U.S. Bankruptcy Court, and the Fulton Homes plan, filed Sept. 15, is the repayment deadline.

Under the lenders' plan, the builder would have three years to repay its current debt, estimated at $184 million to $194 million, plus whatever interest accrued during the repayment period.

The Fulton Homes plan would give the company six years to repay its debt.

Another key difference is the amount of a lump-sum payment to be made to creditors immediately upon court approval of the prevailing plan.

The lenders propose an advance payment of $50 million, while the builder's plan would require $30 million to $35 million in advance.

According to court documents, Fulton Homes currently has cash reserves of about $80 million.

Another major difference is in the interest rate that would accrue during the repayment period. The rate proposed by Fulton Homes would top out at slightly above 7 percent, based on the current prime interest rate, while the lender-proposed interest rate would go as high as 9 percent.

Vendors to the builder with outstanding accounts receivable also would be treated differently, depending on which plan prevails.

The lenders' plan would have them paid in full immediately, while the Fulton Homes proposal would pay them 60 percent immediately and the remainder in installments over a two-year period.

Ira Fulton, who's a noted philanthropist, would be affected by the vote's outcome.

An unsecured, $25 million debt owed to Fulton by his company could not be repaid until after all other creditors had been paid in full, under the lender plan.

The homebuilder's plan immediately would exchange founder Fulton's debt for additional private shares in the company, subject to the court's approval.

The Chapter 11 case, which Fulton Homes filed in January 2009, passed the 20-month mark on Monday, which by law opens up the proceeding to alternate repayment proposals from any interested party. Before Monday, only the debtor, Fulton Homes, was allowed to submit a plan.

Another local company, Chandler-based grocery chain Bashas' Inc., recently emerged from its Chapter 11 proceeding after a 13-month effort.

Fulton Homes' creditors are seeking payment stemming from a $250 million unsecured line of credit extended during the housing boom.

Lead creditor BofA cut off the credit line in late 2008. The Charlotte, N.C.-based bank contends that Fulton Homes owes the bank group more than $163 million, plus interest and legal fees.

Earlier this month, Judge George B. Nielsen Jr. approved the Fulton Homes vote deadline and a follow-up hearing on Oct. 28.

Regardless of which plan receives the majority of creditors' votes, it still would be subject to the court's evaluation and approval.

If creditors or the court rejected both plans, Nielsen could rule for the liquidation of Fulton Homes - which he already has vowed not to do - or he could throw out the bankruptcy case, leaving the builder and its creditors to fend for themselves in civil court.

by J. Craig Anderson The Arizona Republic Sept. 29, 2010 12:00 AM



Fulton Homes' reorganization plans duel