After nearly a year in Chapter 11 bankruptcy proceedings, home builder American West Development Inc. won court approval to return to mainstream commerce.
U.S. Bankruptcy Court Judge Mike Nakagawa on Friday overruled objections to a fund that will cover construction defect claims and approved the company’s bankruptcy reorganization plan. Typically, the paperwork to complete the transactions that mark the formal exit from bankruptcy is finished within a month.
As a result of a grand bargain reached with lenders before the case began on March 1, $162 million in debt will be reduced to $49.6 million, reflecting the shrunken value of the second-largest home builder based in Las Vegas resulting from the brutal real estate downturn.
The banks agreed to give up their claim to a $112.4 million shortfall, creating the financial room to repay small creditors without any collateral. In court papers filed last month, American West president Robert Evans estimated they could receive as much as 80 percent of the $2.3 million they are owed.
According to court papers, $1.8 million stems from a price commitment that the company marketed during the recession, offering to new home buyers a rebate if values fell below what they paid. This turned out to be a sore spot among buyers when they found out that the bankruptcy would eliminate the commitment and very few of them actually qualified for the cash.
In addition, company founder and majority owner Lawrence Canarelli will kick in $10 million in cash to effectively buy back the company. Of that, $1.5 million will fund a trust to compensate people for any construction defects found in their homes.
Home buyers can take a one-time payment, calculated at $216 in voting records pertaining to the case, in return for giving up any future claims of shoddy workmanship. One-time residential developer James L. Moore, who will oversee the trust, estimated that the claims could run as high as $20.9 million but would likely amount to only a small fraction of that.
Besides the cash, the trust could pick up funding from certain legal claims and insurance.
The U.S. Trustee, the wing of the Justice Department charged with overseeing the bankruptcy system, had objected to the trust’s structure and a perceived lack of independence from the company. Nakagawa’s 10-page order found that the trust passed legal muster, however.
Evans could not be reached for comment on the outcome of the case.
Like other home builders in the area, American West showed signs of renewed life last year. Loans allowed it to continue work even though it was in bankruptcy.
According to Home Builders Research Inc., the company closed 267 sales last year, a 41 percent gain from 2011. This tracked the 42 percent increase to 5,544 home sales recorded by all Las Vegas developers.
The performance ranked American West ninth in the valley, with less than half of 669 closings by market leader D.R. Horton Inc. The only locally based company ahead of American West was Harmony Homes at 433 closings.
In financial projections included in the bankruptcy papers, American West laid out an aggressive growth pace for the coming years. By 2016, the company predicts revenues of $37.4 million, double the estimate for this year, while operating profit will more than triple to $7.4 million.
Contact reporter Tim O’Reiley at email@example.com or 702-387-5290.