Sunday, September 5, 2010

Fulton Homes bankruptcy not a quick fix

Participants in the Fulton Homes Corp. bankruptcy case will meet Thursday for their fourth attempt at negotiating a reorganization plan that would allow the Tempe-based homebuilder to emerge from Chapter 11 reorganization.

It has been more than 18 months since Fulton Homes sought the U.S. Bankruptcy Court's protection in January 2009 from a group of lenders, led by Bank of America, that also includes JPMorgan Chase Bank, Compass Bank and Wachovia Bank.

The Fulton Homes case has dragged on far longer than is typical of such proceedings, primarily because of lengthy debates over whether the court should consider liquidating the company and whether creditors should be allowed to scrutinize Fulton Homes founder Ira Fulton's charitable activities.

Doug Fulton, Ira's son, is Fulton Homes' current president and CEO.

In late June, presiding Judge George B. Nielsen Jr. placed Fulton's charitable organization, the Ira A. Fulton and Mary Lou Fulton Family Trust, in contempt of court for failing to disclose financial information he had ordered it to hand over in May.

Fulton attorneys said they merely had been pursuing other options to which they were legally entitled, such as filing a motion asking Nielsen to reconsider his previous disclosure order. They also applied to a Bankruptcy Court appellate panel for a stay of Nielsen's order until the trust could pursue an appeal of the decision.

Both requests were denied.

Fulton attorneys have argued repeatedly that the family trust's finances are irrelevant to the bankruptcy case. The trust is a separate legal entity that has pledged or donated hundreds of millions of dollars, including more than $160 million to Arizona State University.

Local real-estate experts said the creditors most likely are looking for evidence that some of the money donated by the trust came directly from an unsecured line of credit that Bank of America had extended to the company back when the Phoenix area's housing market was still booming.

Bank of America cut off the credit line in late 2008. The Charlotte, N.C.-based bank contends that Fulton Homes owes it more than $163 million.

Neither the debtor nor creditors' attorneys returned calls this week seeking comment.

Fulton Homes has been trying for months to fend off creditors' efforts to force a liquidation of the company.

The Tempe-based builder said in June that a successful effort to reposition the company from a luxury-home builder to a provider of lower-cost homes for first-time buyers has led to a dramatic increase in home sales and net income.

The company's attorneys also have filed court documents stating that liquidation is unnecessary, because the company's turnaround would allow it to repay creditors in full.

The creditors' attorneys have complained repeatedly about Fulton Homes' refusal to provide a plan for possible liquidation, or to acknowledge the possibility that liquidation provides the most beneficial outcome for creditors.

They have argued in court documents that Fulton Homes' plan to repay creditors by 2015 is based on a best-case scenario, and that it would not include reimbursement for some costs such as attorneys' fees.

Fulton Homes was founded in 1974 by Ira Fulton, a prominent community figure and one of the state's best-known philanthropists.

The engineering college at Arizona State University bears Fulton's name, and its Mary Lou Fulton College of Education was named after his wife in May 2008.

by J. Craig Anderson The Arizona Republic August 25, 2010 12:00 AM

Fulton Homes bankruptcy not a quick fix

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