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Fairfield fights for its life.

Fairfield Fights For Its Life

Thirty-four years after he helped launch the original Fairfield Communities partnership, Randy Warner's life is hog-tied by lawyers, litigation and bankruptcy.

"My lawyers won't let me say anything," says Warner, 61, CEO of the company since 1973. "They're afraid I'll get into trouble."

Surprisingly upbeat in spite of his battered resort company losing $24.8 million in 1989 - its worst year ever - Warner clearly was itching to tell his side of the story while he sat for a photograph last week. His office on the top floor of the Fairfield Communities building in Little Rock is littered with piles of legal documents, and credit troubles are on his mind.

But since filing for Chapter 11 bankruptcy protection Oct. 3 - the largest filing in the state's history - Warner's only public speaking for the record has been into the court microphone.

Warner took the stand two weeks ago in U.S. Bankruptcy Judge Robert Fussell's courtroom to repeat once again what he so firmly believes: That Fairfield isn't busted, just temporarily cash poor, and its only immediate problem is its loss of a $45-million line of credit to First National Bank of Boston.

Bank of Boston is reeling with its own troubles - over $400 million in troubled real estate loans. Just like Fairfield's stock, which has plunged from $6 a share last year to less than 50 cents last week, so Bank of Boston's stock has dropped 66 percent. Trying to turn itself around, the bank is tightening every lending rein it can find, including Fairfield's.

When Bank of Boston cancelled Fairfield's credit line this August, Fairfield's liquidity evaporated. Within a month, a $3.8-million bond payment was missed, and Fairfield sought refuge in bankruptcy protection, hoping to solve its problems with the help of a federal judge.

Presently, Fairfield has a saviour in the form of a $20-million commitment from Security Pacific Arizona to replace the lost credit line, but the hitch is Judge Fussell must approve it. The judge hopes to rule by Dec. 3, and a favorable ruling should give Fairfield room to breathe. Without the quick cash, the company will be in serious jeopardy.

For Warner, who knows Fairfield better than anyone, the present troubles must seem a crazy collision of company mistakes, unexpected twists and plain bad luck.

It started with a corporate Citation Jet, a jaguar and a junk bond.

Losing Control

In 1984, business had never been better.

Fairfield chalked up record profits of $16 million; the company's timeshare business, begun in 1979, was booming; and so was the economy, especially lifestyles of the rich and famous. Everybody wanted a leisure-lifestyle vacation and Fairfield's 70,000 acres at 27 locations in 10 states and the Virgin Islands were eager to please.

Having built the company nearly from scratch, Warner was ready to step into the background and turn control over to his heir-apparent, George Donovan, a top performer for the company who ran the Knoxville, Tenn. office.

In June 1983, with Warner's stamp of approval Donovan became president of the company. A hardworker who had a passion for flash, Donovan and the go-go years of the Roaring |80s were in full force.

"You know that old commercial where the guy drives out onto the tarmac in a Jaguar to get into the Citation? That was George Donovan," says one Fairfield insider. A symbol of high corporate status, Fairfield bought the ritzy Citation partly to please Donovan. Before long, he bought the Jaguar to match.

Donovan's production and relentless ability to drive the workers beneath him to success had smoothed over any rough edges Fairfield's conservative board might have worried about. It wasn't until he got to the top of the company and had control over larger purse strings that trouble began.

First, Donovan didn't move to Little Rock as planned when he was appointed president.

Next, without warning he abruptly move to Atlanta. Within a year, Fairfield under Donovan's direction was heavily into the Florida resort home building market.

Within two years, expenses were heading out of control, and worse the company owed $370 million, topping its revenues of $320 million. With Warner's forceful assistance the head-strong Donovan was on his way out the door by December 1985 and Warner gave up any plans of early retirement. But the damage had been done: Fairfield took its worst hit ever in fiscal 1986, losing $17.6 million.

The following year, the company got serious about cutting off its home building operations as it set about unloading 10 operations in Florida, Arizona and Georgia.

But the $500-billion S&L industry collapse was still in the distance, banks hadn't started reeling, and Fairfield thought it had time to seek the best price. Plus, there was Mike Milken.

The Predators' Ball

Part of Fairfield's rapid growth in the late 1970s and 1980s came through junk bond financing provided by Mike Milken and Drexel Burnham Lambert. Fairfield's first junk bonds would be issued in 1977 and by 1990 they would total $93 million.

Fairfield was even touted as a Drexel success story at a 1983 Predators Ball in swanky Beverly Hills, the annual gathering of Milken's junk bond legions. In the middle of the 1980s, Milken and his followers thought they were out to remake the world.

"What was not debatable was that Milken, some of his Drexel colleagues and his anointed players had made more money in a shorter period of time than any other individuals had done in the history of this country," wrote Connie Bruck in her 1988 book about Drexel's fabulous money machine, The Predators' Ball.

But those heady days, and Fairfield's dependence upon them, came to an abrupt end when Milken and Drexel both collapsed in 1989 in a fiscal fireball taking the junk bond market with it. Suddenly, Fairfield's ability to automatically roll over its junk stopped.

So in December 1989, when Mike Milken was no longer a phone call away, refinancing $32 million in junk bonds even at a 15 percent interest rate became more than just a formality.

Fairfield finally managed to roll the bonds over by agreeing to pay them off in segments, but when the Bank of Boston called its $45 million credit line this August and the company then couldn't make a $3.8 million follow up junk bond payment in early October, the game was up.

A Suit Of Lawyers And 2,029 Creditors

The complexity of the Fairfield bankruptcy case is daunting.

Newspaper reports the day of the bankruptcy filing were wildly conflicting. One said the company owed $345 million, another said $648 million. The list of creditors ran 226-pages with 2,029 names.

But the crux of the current case is simple.

Bank of Boston says it wants back its $23 million it has lent Fairfield. Fairfield says it shouldn't worry because it has over $125 million in collateral for the loan. But Bank of Boston's experts say, no, the collateral's worth is closer to $39 million.

Why the huge gap? Fairfield's experts say you should value the company based on its worth as a going concern; but Bank of Boston's loan officers want to know what you could sell it for, not what you could manage it for.

If Fussell lets Fairfield stack a new $20 million loan from Security Pacific in front of Bank of Boston's loan, then the bank comes up short, it claims.

For Fairfield, the new loan will allow them to continue on and emerge from bankruptcy when the time is ripe. Without it, it may be curtains.

Last week after hearing a day's worth of evidence from appraisal experts for both sides who offered wildly conflicting valuations of the collateral, Judge Fussell said out loud, "I have a question, how is the court going to resolve this?"

Sitting in court last week with his wife at his side, Warner had to endure the testimony of the Bank of Boston loan officer that handled Fairfield's loan for most of 1990.

Dressed in a conservative black coat and dark shoes, the woman gave the appearance of a studious scholar. Her voice was almost childlike in its sincerity and apparent distance from the grubby world of business collapse.

"The Bank of Boston was concerned that the company lacked a viable business plan," she said of Warner's life's work. "The debt just started strangling them."

For 17 years at the Bank of Boston, Warner's loans had been handled by Gilbert Dempsey. But Dempsey retired in January 1988 and another loan officer left within two years.

The current loan officer said she could never understand how Fairfield was going to make ends meet. "They never really tied together so it was always a mystery," she says of projections Fairfield showed her designed to remedy cash flow problems.

Finally in July, she decided it was "clearly a deteriorating situation" and turned the account over to the loan review section of the bank, the place where workouts are down.

Warner sat patiently listening to her testimony in Fussell's spacious courtroom. Occasionally, he would jot down notes on a pad. Sometimes he seemed to hang his head.

In the end Warner, an attorney himself, is reduced to depending on experts, lawyers and more lawyers.
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Title Annotation:Fairfield Communities
Author:Walker, Wythe, Jr.
Publication:Arkansas Business
Article Type:company profile
Date:Nov 12, 1990
Previous Article:Baird, Kurtz, Dobson sits atop CPA heap.
Next Article:Need to fill a loan order? Better head for the border.

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