Kimball Hill files for bankruptcy protection

Yet another top area home builder confirmed Thursday it filed for bankruptcy protection but stressed it will conduct business as usual -- at least for a while longer.

In an interview with the Daily Herald Thursday, Kimball Hill Chief Executive Officer Ken Love said the home developer is also seeking an investor to help bail it out of its debts during this housing market downturn.

The landmark Rolling Meadows-based builder and 29 affiliates filed for Chapter 11 bankruptcy protection Wednesday, and a bankruptcy judge Thursday approved its ability to pay its bills and continue operations.

Love portrayed the bankruptcy filing as a financial restructuring, not an operational interruption.

Under Chapter 11 bankruptcy protection, a business reorganizes its debts and gets a grace period with its creditors, as opposed to Chapter 7 bankruptcy protection, where the business must sell off its assets and pay whatever their worth to creditors.

Love said both owners with homes under way and prospective homeowners should consider Kimball Hill an active home builder. And he said Kimball Hill now will offer warranties with an extra layer of insurance.

"What I would ask (as a home buyer) is 'Will the company honor the warranty?'" Love said. "We expect to honor warranties."

Kimball Hill has arranged with a third-party insurer to step in if it is unable to finish its homes, Love said.

Cleaning up the debt structure would make Kimball Hill much more attractive to an equity investor, Love said. He said he hopes a restructuring plan can be agreed upon within 90 days.

Love said "a number of interested parties" have the money to keep Kimball Hill going, Love said.

But he stopped short of saying he is shopping Kimball Hill for a buyer.

Kimball Hill has several projects under way in the Chicago suburbs, including Sugar Grove, where 2,470 homes on 1,300 acres are planned for Settlers Ridge. Just 150 to 200 permits have been applied for, according to Sugar Grove officials.

The builder is one of several in the Chicago area said to be in financial distress.

"As time goes on, we're going to see an increasing number of these things," said Steve Hovany, president of Strategy Planning Associates of Schaumburg, a real estate research firm. "It's as simple as running out of money and, in these times, it's hard to raise money."

Earlier this year, South Barrington-based Kennedy Homes laid off 20 of its 32 employees and suspended new home building.

Kennedy Homes also filed a civil suit against a group of lenders led by Harris bank alleging the group lent it too much money and is now improperly asking for its repayment. Along with fraud and other charges, Kennedy asked the court for up to $1.2 billion.

Warrenville-based Neumann Homes sought Chapter 11 protection in the fall.

In its bankruptcy filing, Kimball Hill listed assets of $795.5 million and debt of $631.9 million as of Dec. 31.

It also added that it has about $60 million in cash to provide "ample liquidity to fund daily operations … and to meet customer and employee obligations through the duration of the restructuring."

Love said bankruptcy protection may make it possible for the firm to get out of partnerships in the Las Vegas area that could have saddled it with additional debt.

Kimball Hill got two loan extensions this year, the latest expiring May 9, in order to cover its $500 million credit line.

It also hired Chief Restructuring Officer Andrew Hede of New York-based turnaround firm Alvarez & Marsal to assist in the restructuring.

Kimball Hill, now the second-largest builder in bankruptcy, announced Feb. 27 that it is exiting the Florida housing market because of increased home inventories and foreclosures there.

The company also said it was eliminating 75 jobs at its corporate offices and other locations.

Kimball Hill generated almost $900 million in revenue in the fiscal year ended Sept. 30.

But its first-quarter homebuilding revenue fell 36 percent to $152.4 million and the company reported a net loss of $46.4 million.

New orders in the quarter ended Dec. 31 fell 38 percent to 447 units and the average price of homes sold in the quarter slumped 15 percent to $230,000.

Kimball Hill sells houses in California, Illinois, Texas and Las Vegas.

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.

New home sales in the U.S. fell in February to the lowest in 13 years as tighter loan restrictions and the prospect of prices falling further kept buyers away.

Sales dropped 1.8 percent from the prior month to an annual pace of 590,000, the lowest since February 1995, the Commerce Department said March 26 in Washington. The median price decreased 2.7 percent from a year earlier.

Kimball joins at least a dozen homebuilders that have filed for bankruptcy since June.

The largest builder to file for bankruptcy was Tousa Inc., which filed on Jan. 29. Tousa, based in Hollywood, Fla., listed assets of $2.3 billion and debt of $2.24 billion in a Chapter 11 petition filed in U.S. Bankruptcy Court in Fort Lauderdale, Florida.

Homebuilders Levitt & Sons LLC and Kara Homes Inc. also sought bankruptcy protection as U.S. home sales and prices slumped.

• Daily Herald news services contributed to this report.