Las Vegas Sun

March 29, 2024

Rhodes creditors granted spending oversight

Click to enlarge photo

Jim and Glynda Rhodes

Beyond the Sun

The future of Rhodes Homes hangs in the balance this summer.

The U.S. Bankruptcy Court signed off on an agreement Tuesday for a $1.2 million budget that will allow Rhodes to use its cash to continue building and selling homes through June 28. The company, in the meantime, is developing a plan to help it emerge from bankruptcy — a challenge given the slowdown in the homebuilding industry and millions of dollars of debt.

Company President Jim Rhodes retains his ownership control for now because creditors announced this week they have postponed a May 15 hearing that would have had Bankruptcy Judge Linda Riegle consider whether to remove Rhodes and appoint a trustee.

The creditors led by Credit Suisse appear to be satisfied because they have put in place a financial adviser who oversees Rhodes’ expenses and contracts.

In April the creditors for more than $370 million in outstanding loans to Rhodes Homes accused Rhodes of misappropriating funds and wanted him out to prevent what they say is continued mismanagement.

In Chapter 11 bankruptcy proceedings, attorneys for Credit Suisse and other lenders allege Rhodes directed millions in loans to Rhodes Homes to finance companies not covered by the loans. That included Harmony Homes operated by Rhodes through a trust in his children’s names, the bankruptcy filing said.

The creditors claim Harmony Homes is bidding on Kimball Hill Homes’ Las Vegas real estate assets in an attempt to increase its presence.

Rhodes Homes’ spokesman Bill Marion said there is no evidence to support those claims.

“Since the filing the creditors have consulted with unfettered access to all of the books,” Marion said. “There is no evidence of any of those allegations, and they are aware of that.”

Rhodes Homes attorney James Stang of Los Angeles said the creditors would object to further spending of the company’s cash if they continued to harbor those concerns.

Attorneys for the creditors, however, said their willingness to sign off on the use of cash doesn’t mean a change of heart about the accusations and possibility of seeking a trustee. Having a financial adviser to oversee Rhodes has alleviated their immediate concerns, attorneys said.

Getting a company president removed by the court is a legal hurdle. The creditors even made a request to dismiss the bankruptcy that would enable them to take over the company’s assets.

The creditors’ filing alleges questionable activity, possibly even criminal, in the weeks leading up to the Chapter 11 bankruptcy filing March 31. For example, Rhodes Homes had $8 million in cash on its balance sheets, but when Chapter 11 was filed, it dropped to $1.8 million.

Allegations include Rhodes paid family members for limited work, bought luxury automobiles and may have used company funds for a divorce settlement.

The initial filing by creditors was because of what they said was Rhodes’ widespread fraudulent activity. Their lawyers said the creditors have no confidence in his ability to rehabilitate the company and develop a viable reorganization plan. Although the option is on hold, the creditors sought to remove management from day-to-day control and wanted a court-appointed independent party to run the company.

Rhodes Homes filed for Chapter 11 for a group of companies after it was unable to meet a March 31 principal and interest payment. The company’s assets were used as collateral for $500 million in financing arranged by Credit Suisee in November 2005. Other lenders are Highland Capital, General Electric Corp., Cypresstree Investment Management and Sorin Capital Management.

Credit Suisse hired national consultant AlixPartners to inspect Rhodes Homes’ books and talk with employees.

The firm reported $2.375 million was paid over the past two years to Rhodes’ ex-wife out of the accounts of an affiliate company not covered by the debt. According to an employee of Rhodes, the payments were part of a divorce settlement and that the cash may have come from Rhodes’ companies covered by the debt, according to the bankruptcy filing.

The report also said Rhodes Homes made disbursements in excess of $7 million to outside companies affiliated with Rhodes in 2007.

Among the accusations that involved his family:

• Rhodes’ brother, John, was an employee of the company and received a salary of about $600,000 in 2007 and 2008 for services that “appear limited in their responsibility.”

• Rhodes’ current wife, Glynda, was also an employee and received a salary of $98,800 in 2007 and 2008 for “services that were similarly limited.”

• Rhodes Homes had been paying a nanny’s salary.

• The company paid about $1.75 million to Glynda Rhodes’ interior design business in 2007 and 2008.

The filing said Jim Rhodes received a $75,000 bonus Dec. 21 in addition to his $400,000 annual salary. This bonus was approved at a board meeting in April 2008 at which Rhodes was the only attendee.

Creditors said among assets listed for Rhodes Homes is a Bentley with a book value of $76,000 and two Mercedes-Benz with book values of $98,000 and $67,000, respectively.

Among other accusations in the filing involving the company:

• A large amount of money was spent on land in Pravada, Ariz., that had a damaged flood channel and no grading permit.

• Rhodes Homes’ employees did work for businesses, including Harmony Homes. It cited the former chief financial officer who identified $2.8 million in overhead costs incurred that should have been billed to the companies.

• It cited $1 million for expenditures of Rhodes Homes Arizona on property owned by South Dakota Conservency, one of Rhodes’ affiliates unrelated to the debt.

• It cited $2.1 million paid by Pinnacle Grading for equipment used on the Pravada property.

The filing went on to single out Rhodes for his past and branded him as one of one of Las Vegas’ most controversial homebuilders, saying “his self-dealing and illegal conduct extend to many facets of his life.”

The filing mentioned accusations of Rhodes making illegal contributions to candidates and paying nearly $150,000 in fines, and to his implication in the federal investigation of former Clark County Commissioner Erin Kenny, who pleaded guilty to federal bribery charges.

Rhodes Homes owes more than $370 million to the creditors and has other obligations to equipment lenders and others for $35.2 million.

AlixPartners said it reviewed books, talked with employees and former employees.

The report cited two former employees who said the Rhodes’ management style was one of “intimidation and micromanagement,” causing poor business decisions and high employee turnover.”

Rhodes Homes is the developer of Rhodes Ranch in the southwest valley and master-planned Tuscany in Henderson. It has eyed development in Northern Arizona.

In filing for bankruptcy protection, Rhodes cited the recession for creating a situation where land values and home values have plummeted and new-home sales have fallen dramatically.

The company is still operating and is working on a restructuring plan to emerge through the bankruptcy process.

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy