Las Vegas homebuilder American West Development Inc. has filed for Chapter 11 protection after reaching the terms of a restructuring with its prepetition term lenders.
The company submitted a petition on March 1 in the U.S. Bankruptcy Court for the District of Nevada in Las Vegas, blaming a downturn in the housing market and a difficult credit market.
"The economic downturn of the past four years has hit the homebuilding industry hard, particularly in southern Nevada," American West president Robert Evans said in a statement March 1.
American West in court papers said the poor economy has "harmed [the] debtor's business by further increasing the supply of housing inventory, negatively impacting pricing conditions, decreasing the demand for homes and dampening customer confidence."
The filing came after American West finalized a lockup agreement with term lenders led by California Bank & Trust, owed about $177.5 million. The agreement commits the lenders to vote in favor of a reorganization plan that would restructure the lenders' claims.
The deal would give the lenders a secured claim of $49.64 million and a $127.87 million unsecured deficiency claim.
Each prepetition lender would receive new promissory notes in full satisfaction of the secured debt, court papers show. The term lenders would waive the deficiency claim if general unsecured creditors voted in favor of the plan.
American West's term lenders include Wells Fargo Bank NA, owed $44.38 million; CB&T ($34.61 million); J.P. Morgan Chase Bank NA ($34.61 million); Bank of America NA ($24.46 million); U.S. Bank NA ($15.78 million); Key Bank NA ($13.81 million); and Comerica Bank ($9.86 million).
"With unanimous support from all of our lenders, this reorganization will allow us to move forward with existing and new projects, protect our current employees and subcontractors, and provide for our homeowners," Evans said in the statement.
American West has yet to file its disclosure statement and plan, although court papers indicated the lenders have received the documents.
Judge Mike K. Nakagawa of the Las Vegas court is set to consider the lockup agreement at a second-day hearing on April 10. He also then would weigh motions including interim use of a $10 million debtor-in-possession loan from AWH Ventures Inc., a nondebtor affiliate that supplied a prepetition revolving loan.
American West looks to fund the initial stage of its case through use of the term lenders' cash collateral.
Under an agreement with the lending group, the debtor would use the cash through its bankruptcy stay pursuant to a defined budget. The lenders also cannot oppose the DIP financing agreement. Professionals will have $3 million carved out for fee payments.
Nakagawa is scheduled to consider the request with other first-day motions, such as continued use of the debtor's cash management system, on Tuesday, March 6.
The new-money DIP from AWH, meanwhile, will be priced at 15% per annum, with the interest rate increasing to 18% on default. The loan will mature 15 months after the petition date and has a $3 million carve-out for professional fees.
The DIP will not prime the term lenders. Instead, AWH will receive a first lien on avoidance actions and a junior lien on previously encumbered assets.
AWH, owed $10.45 million on a prepetition revolver, would convert the balance on the DIP to equity in reorganized American West under its proposed reorganization plan. Under the DIP agreement, AWH would convert at least $3 million of the postpetition loan to equity as part of any other plan, as long as the proposal also paid the affiliate in full for the remainder of the DIP.
American West, founded on July 31, 1984, is one of the top 100 homebuilders in the country, the company said in the March 1 statement. The company has eight single-family communities under construction in the Las Vegas Valley, with Carmel Hills, Brookside, Brentwood, Bridgewater, Highland Collection and Stonebridge set to open this year.
The company listed $55.39 million in assets and $207.69 million in liabilities in schedules.
American West's book asset value, however, was $83.93 million as of Jan. 31, court documents said.
Aside from the term lenders, the debtor's largest unsecured creditors are Insurance Co. of the West (owed $12.16 million) and Insco Dico Group ($7.55 million) for contingent claims for surety bonds.
The Canarelli Family Trust is the debtor's largest equity holder, with a 66.26% interest. Lawrence Canarelli is the sole trustee of the trust. Other equity holders include the Scott Lyle Graves Canarelli Irrevocable Trust, the Jeffrey Lawrence Graves Canarelli Irrevocable Trust, the Stacia Leigh Lemke Irrevocable Trust and the Lewren Graves Canarelli Irrevocable Trust, which each hold an 8.44% interest.
Debtor counsel Brett A. Axelrod of Fox Rothschild LLP did not respond to requests for comment on March 2.
Dave Sprentall of Snell & Wilmer LLP represents the term lenders.