Wednesday, August 12, 2009

Mercedes Homes Bankruptcy ESOP Update

Hundreds of past and present Mercedes Homes employees would lose potentially millions of dollars in stock-based retirement benefits if a federal judge approves the Melbourne company's plan to emerge from bankruptcy.

The same plan, meanwhile, would pay off a top creditor: the Buescher family, which founded and controls Mercedes, federal court records show. While employees would lose their stake in the company, the family stands to recoup its own investment under the bankruptcy plan.

Like the current and ex-employees, the Beuschers would give up shares that account for 44 percent of an employee stock fund. But they would receive total ownership of the reorganized Mercedes Homes in return.

"The Bueschers walk away with everything," said James Atkinson, a former computer-aided-design manager who worked for Mercedes for 10 years. Atkinson had accumulated about $225,000 in the employee-stock ownership plan, or ESOP, before he was laid off in 2006. "The little guys like myself walk away with nothing."

Although company officials described the stock as worthless, Mercedes Homes itself still appears to have value. Despite its struggles and the recession, Mercedes reported $407 million in home sales last year.

A Mercedes spokesman said the move is justified because family members invested millions of dollars of their own money, structured as loans from a second family company. Those loans kept the homebuilder afloat during the downturn.

"Without this substantial personal investment . . . Mercedes Homes likely would be liquidated under U.S. Bankruptcy Laws," Chief Executive Officer Keith Buescher wrote to the 220 or so remaining employees in a letter obtained by FLORIDA TODAY.

Employee-ownership plans serve double-duty as retirement savings as well as incentives for workers to boost profits and, consequently, the value of the company. Mercedes employees did not contribute portions of their pay to the plan, as they might with a 401(k). Instead, the company shared profits by purchasing stock on employees' behalf.

Donald Israel, an expert on employee stock funds, described the Mercedes plan as unfortunate, but stressed that when companies file for bankruptcy, their stock typically drops to zero and employee shareholders are last in line to recover anything. Israel is president of Benefit Concept Systems, a New York firm that sets up and manages ESOPs.

"What has happened is all the stock held by the family and ESOP has gone down the toilet," Israel said.

Employee wealth

Under the Mercedes reorganization plan filed in U.S. Bankruptcy Court in West Palm Beach in July, Mercedes would dissolve the stock ownership plan, worth $228 million as of Jan. 31, 2006, the most recent year a summary annual report could be obtained by FLORIDA TODAY.

The reorganized company would issue all of its new stock to Real Estate Investment Ventures (REIV), a separate family company. In turn, REIV would forgive some $68.5 million in loans to Mercedes, plus $2.1 million in interest.

Five children of company founder Howard Buescher manage REIV. They also serve as senior officers with Mercedes Homes, the nation's 27th-largest housing builder.

Several creditors -- including the U.S. Bankruptcy Trustee -- have already filed objections to the plan, which must be approved by select creditors through a vote Aug. 25.

"It must be restated that employees did not contribute cash into the ESOP," says a prepared statement from the company. "Rather, Mercedes Homes sold stock to the ESOP entirely for the benefit of employees."

The fund's administrator halted payouts from the ESOP in 2005, after real estate collapsed and Mercedes started laying off staff. The plan was terminated Jan. 31, and a trust now holds the Mercedes stock.

Bankruptcy plan

At the same time the company stopped contributing to the fund, the Buescher family created REIV to start investing in land.

The family's claim as creditors to Mercedes assets is second in line behind Bank of America. Mercedes Homes owed the bank $151.4 million when it filed for bankruptcy. Under the reorganization plan, Bank of America would refinance about 90 percent of that debt and continue to hold liens against Mercedes.

If the bankruptcy judge rejects the reorganization plan, the deal with the bank could collapse and Mercedes Homes could be forced to liquidate, said Bob Brewer, a spokesman for Mercedes.

"The real story here is that this Melbourne-based family business may very well become the first private builder to emerge through bankruptcy at this singular time in our lifetimes," Brewer said.

Barratt-American Homebuilder Bankruptcy

One of San Diego's biggest homebuilders is shutting down.

Barratt-American built the Nantucket development, in Leucadia, and thousand of other homes in San Diego. Last year, though, the housing meltdown forced Barratt to reorganize, under court protection. The bankruptcy court now says that Barratt has no future and must shut down.

Some of the Leucadia homes are still unfinished, while other lots are empty. Bank of America foreclosed on those properties and still owns them.

"No one ever speaks to us and tells us what's going on and what the plans are, nor has Bank of America, so, pretty much, you know, we spent a bundle of money, and we're, like, let out to dry, basically," said Deborah Molnar, a Barratt-American homeowner.

Barratt's president said he tried to work out a deal with the Bank of America to finish the homes, but, he said, the bank would not cooperate.

Bank of America issued a statement on Tuesday afternoon.

"Barratt filed Chapter 11 bankruptcy late last year," Bank of America said in the statement. "The bankruptcy court on Aug. 6 entered an order converting the case to Chapter 7 in part because of issues brought to the court’s attention by the Committee for Unsecured Lenders, including the fact that Barratt acted in bad faith, failed to disclose and obtain court approval for certain payments and has allowed the property it owns to deteriorate (see filings). Many of the referenced Nantucket lots are not property of the bank. As to those the bank does own, the bank has had to resolve certain mechanic's lien claims before it could proceed to sell those properties. The bank is now attempting to sell those properties in which it has an interest."

J.S. Kempf & Associates filesfor Chapter 7 bankruptcy

Matthews-based homebuilder J.S. Kempf & Associates filed for Chapter 7 bankruptcy this week, listing assets of less than $50,000 and more than $4.4 million in liabilities.

The company built homes in neighborhoods including The Palisades, a luxury home development near Lake Wylie, and The Club at Longview, off Rea Road in Union County just south of Mecklenburg.

A Chapter 7 bankruptcy filing indicates the company is planning to liquidate its assets, as opposed to shedding debts and reorganizing, as is done in Chapter 11 bankruptcy filings. More than 30 percent of bankruptcy filings in the Charlotte area this year have involved construction-related companies.
Kempf's secured creditors, according to court documents, include First Horizon Construction Lending, owed $334,000 and RBC Builder Finance, owed $365,000.
The largest creditors with unsecured claims include BB&T, owed $2.1 million; and Fifth Third Bank, owed $1.3 million.

In the Charlotte region, experts have said the housing market's collapse and the ripple effect that's had on related businesses has led to a record number of local contractors, developers, building suppliers and others seeking Chapter 11 bankruptcy protection. Staff researcher Maria David contributed.