LandAmerica Financial Group Inc. filed for Chapter 11 bankruptcy protection Wednesday as part of a deal that would turn over three of its title insurance subsidiaries to two of Fidelity National Financial Inc.'s title insurance companies for $298 million.
LandAmerica said in a press release that the Chapter 11 filing will help it facilitate the closing of the sale of its three title underwriting subsidiaries in a stock-purchase agreement.
The filing also will help protect the company's wholly owned subsidiary, LandAmerica 1031 Exchange Services, from its creditors.
The announcement, which came less than a week after Fidelity National terminated its $125 million merger agreement with LandAmerica, sent shares of LandAmerica down 78% in recent trading to 20 cents. Shares of the company, which as of Tuesday had a market capitalization of about $7.8 million, already have shed about 95.4% of their value so far this week.
After Fidelity walked away from their proposed merger Friday, several analysts suggested LandAmerica would likely need to seek bankruptcy protection. Fitch Ratings downgraded LandAmerica's debt ratings to junk status, while Standard & Poor's also lowered its counterparty credit rating on LandAmerica to junk territory.
The merger deal with Fidelity was expected to take advantage of LandAmerica's tumbling share price as Fidelity National looked to become stronger in the face of crimped capital markets and slumping housing sales.
Under the latest deal with Fidelity National Title and Chicago Title, the companies will pay LandAmerica $298 million for Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co. and United Capital Title Insurance Co.
The Glen Allen, Va., company said it will seek the bankruptcy court's expedited approval of the stock purchase agreement so it can close a sale as early as late December.
LandAmerica 1031 operated as a qualified intermediary under section 1031 of the tax code. Section 1031 allows a taxpayer to defer gains or losses due because of a sale or transfer of real property, thus deferring gains taxes that may be due.
LandAmerica 1031 Exchange Services recently shut down after facing liquidity constraints as a result of the collapse of the auction-rate securities market.
"I am deeply disappointed over the need to file for bankruptcy protection for the LandAmerica holding company and the 1031 company," LandAmerica Chief Executive Theodore L. Chandler Jr. said in a statement. Still, he added that the sale of the domestic title operations and bankruptcy protection filing "offers our stakeholders the best result available in this brutal real estate, credit and capital market environment."
In its bankruptcy petition filed in the U.S. Bankruptcy Court in Richmond, LandAmerica reported $3.3 billion in assets and $2.8 billion in debts. The company said it has between 50,000 and 100,000 creditors.
LandAmerica said its other businesses aren't going to seek bankruptcy protection.
