Business - Business News

POSTED: Saturday, May. 30, 2009

Homestead CEO wants to avoid bankruptcy

Homestead Northwest CEO James Wynstra says he's working with investors, banks, contractors and suppliers to get his company back to financial health without a reorganization in federal bankruptcy court.

In a telephone interview Thursday, May 28, Wynstra acknowledged that a letter he sent to investors May 20 made it sound as though Homestead Northwest was moving toward a Chapter 11 filing under bankruptcy laws, in which a company gets a breathing period to come to terms with creditors and remain in operation. But no such filing is now planned, Wynstra said.

"We are trying to restructure with our investors and suppliers and avoid a Chapter 11," Wynstra told The Bellingham Herald. "We are not pinned down yet as to how we will be able to proceed."

Wynstra also emphasized that his company's golf courses, restaurants and waterslide remain up and running. He declined to discuss the Lynden-based company's financial position in detail.

In the letter, a copy of which was obtained by The Bellingham Herald, Wynstra painted a somewhat darker picture, although the letter also outlined a strategy for pulling the company out of its financial difficulties.

"We are currently working on assembling detail for a Chapter 11 filing but have not yet filed," the May 20 letter stated. "We have not yet established timing for such a filing."

The letter also thanked people for their support.

"There has been a phenomenal outpouring of support to the company, to me and to my family," Wynstra's letter said. "We have received over 100 letters and 200 emails of support. That means a lot to us at this time. In addition, there have been scores of volunteers who are helping us maintain Homestead Farms Golf Course, the Sea Links Golf Course, the restaurants at Homestead Farms and Birch Bay and the Birch Bay Waterslides. Thank you to each of them for their outpouring of love and support at this time."

A Bellevue accountant, hired by a group of investors, has been given access to company records and will report back to those investors, Wynstra's letter said.

The dark side: The letter noted that construction activity on company projects has slowed "nearly to a halt," adding, "It will be difficult for us to maintain retail/resort operations in the near term and through August."

In the interview, Wynstra refused to discuss what company construction projects may have been halted short of completion.

The problem is the downturn in sales of Homestead properties, the letter stated. Proceeds from the lower volume of sales "are currently being paid over to suppliers and investors," the letter says.

"We need to bring back construction as quickly as possible, preferably not later than August 1, 2009," according to Wynstra's letter. "We could then pick up construction of partially built buildings and deliver them by the end of September, restoring construction cash flow at that time. On the other hand it will be very difficult to come up with an agreed plan by Aug. 1. This is a very serious conundrum that I don't know how to resolve at this time."

Wynstra's letter goes on to suggest that investors might need to agree to give up their collateral to help save the company, an apparent reference to the deeds of trust - essentially mortgages - that Homestead investors hold on many of the company's properties. If investors agree to relinquish those deeds of trust as security on their investments, it would make it far easier for the company to obtain new financing, complete projects and earn the money needed to pay off investors, according to the letter.

"If collateral is released, your protection will lie in the overall assets available within the company," the letter stated. "Remember that I have secreted nothing, have committed everything I have to the company; there are very substantial assets currently held by the company, which if properly managed to build out, hold the possibility of yielding a reasonably favorable result for investors."

Then, the letter suggested that the company faces challenges in paying off bank loans also secured by company real estate, the largest of which is $19 million from Frontier Bank.

"It is important that the banks work with us to preserve values of your investment," the letter stated. "We may need you to join us in petitioning and urging banks to continue with the Homestead Group."

Patrick Fahey, Frontier CEO, said he could not comment.

Wynstra's letter also proposed raising an additional $3.5 million to $5 million from investors, to "clean up some debt" and "pay for reinitiation of construction activities."

But raising that money might also mean more risk for existing investors.

"This group (of new investors) would have to be carefully put together in accordance with Securities laws and would sit in some kind of preferred position to the remaining investors," the letter stated. "They, however, would be providing the needed capital for the company to continue."

In the May 28 interview, Wynstra suggested that the company could raise money by selling off some of its properties, and some interested potential buyers are already in the wings.

"It's a fluid situation at this point," Wynstra said. "I don't know what else I can say."