Uncertain times for LandAmerica

MICHAEL MARTZ, EMILY C. DOOLEY AND DAVID RESS TIMES-DISPATCH STAFF WRITERS
Published: November 27, 2008

A possible federal bailout comes too late to save LandAmerica Financial Group from bankruptcy, but the company plans to challenge the Wall Street giants whose dealings squeezed it so hard.

Yesterday morning, the Henrico County-based real estate services company asked a U.S. bankruptcy judge in Richmond to protect it from creditors while it tries to reorganize itself.

Later yesterday, the Nebraska director of insurance stepped in with court-ordered powers to manage LandAmerica's two main insurance subsidiaries, which legally are based in that state.

Both moves are meant to shield customers of the insurers, which cover property holders against claims they don't have clear title to their land, from the troubles of another LandAmerica subsidiary that's been hammered by the collapse of an obscure financial market this year.

But while the rapid-fire moves mean policyholders shouldn't have to worry about their coverage, the cost to the Richmond area will be steep.

"This is a serious blow to LandAmerica's leadership role in our community," said Theodore L. Chandler Jr., chairman and chief executive officer of LandAmerica.

"Businesses will be sold. We will have a reducing presence in Richmond."

LandAmerica has halved its work force in the past two years, to about 7,785 employees, and closed more than 400 offices. It employs 837 people in Virginia, including 619 in the Richmond area.

"There's really rather little that is left there," said Mark Dwelle, an analyst with RBC Capital Markets in Richmond who follows LandAmerica.

More job losses at LandAmerica are certain, he said.

Founded more than 80 years ago in Richmond as Lawyers Title Insurance Co., LandAmerica made Richmond a major player in real estate services nationwide as the third-largest title insurer in the country.

Now, its Chapter 11 bankruptcy filing proposes selling 85 percent to 90 percent of its business to a bigger rival to generate $298 million to help settle its debts.

The move came less than a week after that rival, Jacksonville, Fla.-based Fidelity National Financial Inc., walked away from a proposal to buy the whole of LandAmerica, including its debt, in a deal valued at $128 million.

LandAmerica had hoped for help from the ever-changing federal bailout of crippled financial institutions, including a newly announced pledge of $800 billion to buoy consumer credit markets including student loans.

"That could benefit us, but it didn't happen in time," Chandler said.

He said the company still will seek federal help and compensation from other financial institutions he feels failed to honor terms of securities it held.

"We will aggressively pursue all of our rights under the federal Trouble Asset Relief Program and against the institutions that sold these instruments to us and have failed to this point to provide liquidity," he said during a 45-minute interview.

LandAmerica was brought low by the worst real estate and credit crisis since the Great Depression, as well as what Chandler called "the great panic of 2008."

The company was hit hard when an obscure market in auction-rate securities stopped functioning in February. It had used those securities, which pay interest rates that are adjusted through periodic auctions, to hold money for customers.

But when the Wall Street firms that had issued the securities and ran the market stopped the auctions, LandAmerica was stuck with paper it couldn't turn into cash when its customers needed their money.

Most of the nearly $235 million worth of auction-rate securities it holds are based on federally backed student loans, and Chandler hopes federal intervention will let his company cash them in. He believes regulators should take action against the companies that marketed the securities but refused to redeem them.

Under its bankruptcy filing, LandAmerica would sell its Lawyers Title Insurance and United Capital Title Insurance subsidiaries to Fidelity National for $139.4 million and its Commonwealth Land Title Insurance to Fidelity for $158.6 million.

"Essentially, what it comes down to is Fidelity is buying exactly those assets that it wanted as compared to buying the whole company and taking on all the debt," Dwelle said.

Nebraska regulators stepped in after the merger fell apart, worried that the finances of Lawyers Title and Commonwealth were under pressure.

But in a positive sign, they did not tell the two insurers to stop writing new policies, and they expect the companies will be able to pay claims. Regulators in New Jersey and California, home to two smaller LandAmerica insurance subsidiaries, said they are monitoring the situation but have taken no action yet.

LandAmerica asked Judge Kevin R. Huennekens of U.S. Bankruptcy Court in Richmond to act quickly on its petition.

"As an enterprise, this is an incredibly large, functioning, going concern," said Rachel Strickland, one of the company's attorneys. "It represents a lot of people and a lot of jobs."

She said LandAmerica had exhausted all possible avenues and that delaying the sale would damage its business further.

The failed merger with Fidelity was to be completed by the end of March, but LandAmerica hopes to complete the sales proposed in its bankruptcy filing by the end of next month.

Chandler called the sale and bankruptcy plan "a good transaction, given the alternative," which could have been liquidation of the company's assets at a fire-sale value.

Contact Michael Martz at (804) 649-6964 or .

Contact Emily Dooley at (804) 649-6016 or .

Contact David Ress at (804) 649-6051 or dress @timesdispatch.com.

Staff writer John Reid Blackwell contributed to this report.