Duke: Bankruptcy possible for Crescent Resources

THE CHARLOTTE OBSERVERMay 6, 2009 

— Charlotte-based development company Crescent Resources could file for bankruptcy protection as it struggles with the slumping real estate market, a Duke Energy executive told the Observer on Tuesday.

Duke, which owns the company in a joint venture with Morgan Stanley Real Estate, said as part of its first-quarter earnings Tuesday that it took $33 million in charges for Crescent debt it has guaranteed. Duke created Crescent in 1969 to manage its surplus land.

"We're working with the banks, and our preference is to restructure the debt," Duke chief financial officer David Hauser said in an interview.

Asked if Crescent could file for bankruptcy protection, he added that "it is certainly a potential, but we expect to see that resolved within the next 90 days."

Asked for comment late Tuesday on Hauser's remarks, Crescent acknowledged it owes a $50 million debt payment by the end of 2009.

"The company is fully aware of its upcoming maturity schedule and plans to manage its financial obligations appropriately," chief financial officer Kevin Lambert said in a statement.

Crescent has grown into one of the best-known Charlotte-area developers of upscale homes, condos, townhomes and mixed-use developments. It is responsible for several high-end developments, including The Peninsula at Lake Norman and Springfield Village in Fort Mill. It has interests in 10 states in the Southeast and Southwest, according to its Web site.

Lately, it has been selling property. Lambert said Crescent recently closed on a 773-acre tract in Oconee County, S.C., and has 588 acres under contract to Catawba County. The company also recently sold 18 acres and a building under construction in its Lakemont Business Park off Carowinds Boulevard.

"Like other companies in the real estate industry, we continually perform analysis of our assets in order to optimize our portfolio. That process is ongoing. In many cases we have sold and are selling land that is not appropriate for the types of development that Crescent excels in, and thus not part of our long-term strategy."

With real estate values falling, the economy in recession and tighter credit markets, many companies are shouldering high debt loads but are having trouble making payments or restructuring their debts.

Some locally based companies, such as car dealer Sonic Automotive, have had success refinancing their obligations. Others, such as music provider Muzak Holdings, have filed for bankruptcy protection.

Hauser, the Duke chief financial officer, said Duke's exposure beyond the $33 million in charges is insignificant. Duke does not break out Crescent's finances.

Hauser told analysts Tuesday that Duke is a guarantor of surety bonds and letters of credit related to Crescent projects underway when Duke sold Morgan Stanley a 49 percent stake in 2006.

Crescent, he added, is "in discussions regarding a number of potential strategic and financial alternatives" that could affect Duke.

Crescent's troubles have already eaten into Duke's profits.

Last November, Duke reported a third-quarter equity earnings loss of $124 million connected to its interest in Crescent, compared to $10 million in positive earnings a year earlier.

In August, Duke took a $108 million hit as Crescent liquidated properties in Arizona, Florida and Texas, three states hard hit by the nation's mortgage and real estate meltdown, to restructure debt.

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