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Inspecting the Foundation : Real estate: When it completed a $155-million bond sale a year ago, Baldwin Co. appeared to be flush with cash. Since then, it has been hit with liens and lawsuits, but officials say the company is healthy.


NEWPORT BEACH — The tuxedoed Baldwin brothers were all smiles as they strolled through the ballroom of the Four Seasons hotel in Newport Beach, listening to the fizz of champagne, the rustle of sequined socialites and the glowing accolades of their peers in the real estate industry.

During the $2,700-a-table charity dinner honoring longtime Orange County home builders Alfred E. and James P. Baldwin, Auxiliary Bishop Michael Driscoll of the Diocese of Orange blessed the brothers and their ventures--a blessing that seemed already bestowed, given the $155-million junk-bond deal that Baldwin Co. had completed 10 months earlier and the $60-million credit line it had arranged with General Electric Capital Corp.

Befitting the glitzy occasion, the bishop was followed by a king as home-building giant William Lyon mounted the podium at the May 18 dinner to praise the Baldwins for their fiscal acumen.

In a humorous aside, Lyon called the Baldwins' bond deal "the great train robbery of 1993."

Ironically, that remark now reflects critics' skeptical view of the company.

Former executives allege that bondholders were misled, and some investors are nervous about the firm's financial condition. Since collecting the bond money a year ago, Baldwin Co. has seen its management team collapse, much to the dismay of investors who bought the company's IOUs partly because of their faith in that team.

The company also has left a trail of unpaid and unhappy subcontractors and has angered hundreds of Anaheim Hills homeowners by failing to build a long-promised community park.

On Monday, Baldwin Co. is scheduled to make the second of its semiannual bond interest payments, and company President Al Baldwin says the $8.5-million check will be in the mail.

The company must pay about $17 million each year in bond interest--a big chunk of its annual cash flow. In public documents, the company reports it had earnings of $28.5 million before interest in 1993, down from $38.2 million the previous year.

For the first quarter of 1994, the company reported a $4-million profit, down 13% from $4.6 million a year earlier, and said that the costs of stepping up construction activities on its various projects caused it to end the quarter with $14.8 million "negative operating cash flow."

Analysts look for earnings to exceed high-yield debt payments by a 2 to 1 ratio each year before they feel comfortable with a company's ability to pay off junk bonds. Baldwin reported a 1.9 to 1 ratio for 1993, down from 2.39 to 1 the previous year.

With more than 75% of the proceeds from last year's bond sale gone to pay off old debts, however, the company has little left for ongoing operations. At the end of the first quarter it also had used up $41.5 million of its $60 million credit line.

Al Baldwin said the company's financial situation is solid and maintains that suggestions to the contrary are coming from embittered former employees and people who don't understand corporate cash management techniques.

"Our earnings are up and our sales are up," he said, pointing out that the company's revenue from home sales jumped 35% to $63 million for the first six months of this year. He would not disclose second-quarter profit until it is reported to the Securities and Exchange Commission, probably within two months.

One indication of how tight money is at Baldwin Co., however, is the number of subcontractors who are filing liens against Baldwin projects and lawsuits against the company, alleging that they are not being paid. In the past month, almost $1 million worth of claims have been filed in Orange County Superior Court against Baldwin Co. and its various subsidiaries. Other claims for non-payment have been filed in San Diego County.

"That's a lot," said Irvine real estate attorney R. Michael Joyce. "A big home builder would not want that and would normally have the economic wherewithal to get them dismissed."

Al Baldwin shrugs off suggestions that the spate of non-payment suits is an indication of financial trouble.

"People look at the Baldwins as having deep pockets, (with) all this money from our bond offering, and some of them think we should pay them for work they haven't done," he said. "But the bond money was used to develop lots and pay off debt, and now that we're going through a major gearing up and starting a lot of homes, we've had to manage our cash."

In an example of just how tightly managed that cash has been, Baldwin representatives pleaded with Anaheim officials this month for a two-year extension of their deadline to build a community park in the company's flagship development, The Summit at Anaheim Hills. The company argued that it cannot afford to build the $1.5-million project yet.

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