Kimball Hill moves to stay afloat
As Kimball Hill Inc. quakes, its customers and the home-building industry hold on tight.
Chicagoans Terence and Anne Maynard have an unfinished three-bedroom home in Kimball Hill's Shelburne Farms development in Winfield.
"When we were house shopping, Neumann Homes and Kimball Hill were my two choices as the best," Terence Maynard said. "When Neumann went kaput, we really got worried."
Once top 10 home developers in the Chicago area, Warrenville-based Neumann Homes declared bankruptcy in the fall and Rolling Meadows-based Kimball Hill has warned it may soon follow.
Turnaround specialist Bill Brandt said Neumann Homes and Kimball Hill are merely the fault lines that will grow to rock the home building industry in the Chicago area in 2008.
"They are all going to fall very shortly," said Brandt, chief executive officer of DSI, an international turnaround consulting firm.
Brandt predicted Friday Kimball Hill will file for Chapter 11 bankruptcy protection within weeks.
"Their reorganization potential is not good," said Brandt, who has handled complicated home developer bankruptcies in the past.
Turnaround specialist Randall Patterson was more cautious, saying Friday he would have to see Kimball's books before predicting an outcome.
"If unsecured creditors get enough money back it might survive," said Patterson, a partner at Chicago-based Lake Pointe Partners.
Kimball Hill Chief Executive Officer Kenneth Love was not available for comment Friday.
The landmark suburban homebuilder said in government filings Thursday it is closing its KH Mortgage unit and hiring a turnaround firm to help it head off Chapter 11 bankruptcy protection. It also intends to sell more of its properties and reduce the prices on homes.
The builder warned "cross-default" risks exist in the coming weeks that could result in cascading debt agreements.
"There are substantial doubts about whether the company will be able to continue as a going concern," the firm's auditor said recently in a filing with the Security and Exchange Commission.
The company has hired New York-based consulting firm Alvarez & Marsal North America to consider its options, "including the appointment of a chief restructuring officer and whether to seek a complete restructuring under Chapter 11 of the United States Bankruptcy Code."
A key developer of several Northwest and West Chicago suburbs, including Rolling Meadows, Kimball Hill has been laboring under the weight of a $500 million line of credit and a simultaneous housing depression. After expanding nationally in recent years to hot housing markets in California, Florida, Nevada and Texas, those same markets are now suffering the most in the worst housing downturn in years.
Kimball Hill also revealed in this week's filings it is in a joint venture in Nevada for two tracts of land on which it now maintains significant debt. The joint agreement calls for additional financial transactions in the coming weeks, involving additional debt, which could result in the default of that agreement, too.
Kimball Hill has several projects under way in the suburbs, including Sugar Grove, where its Settlers Ridge had planned to develop 2,470 homes on 1,300 acres. Just 150 to 200 permits have been applied for, according to Sugar Grove officials.
The company has been led since 1969 by area philanthropist and Harper College Trustee David K. Hill, who gave up his role as chief executive officer last year and still serves as chairman of its board. He is the son of founder Kimball Hill.
As for the Maynards, Terence said the final walk-through for their home is Feb. 28. Kimball Hill has interim financing from its banks through March 14, so Terence Maynard said he believes his home will be one of the lucky ones finished before possible bankruptcy.
"I think we made it under the wire," said Maynard. But he worries about his subdivision. "There are lots of lots there still to be done."