Cole, in a deposition, said that Ron Ober told him "the relationship with Lincoln Savings would better be served if he [Ron Ober] would negotiate with Lincoln Savings and I would remove myself from it."
Cole said that was fine with him.
The terms offered by Keating were essentially the same that R.A. Homes was negotiating with Smith Barney, a New York investment firm. However, Smith Barney made it clear that if R.A. Homes opted to go with Keating, it would be impossible for the company to also sell stock.
Remarkably, R.A. Homes executives abandoned their plans to go public and forwent the sale of $20 million worth of stock, much of which would have gone into their personal pockets. Instead, they accepted Keating's offer and signed the papers on June 30, 1987.
Ober says the company decided not to go public because the company didn't want to deal with shareholder hassles. "Our biggest motivation was to raise working capital and we were able to do it without having other shareholders. To us, that was a big advantage," he says.
R.A. Homes used the $30 million from Lincoln Savings to repay several other loans from Lincoln, including the $5 million operating line of credit needed to make the down payment on Continental Ranch and to purchase land in Las Vegas.
Keating also got what he wanted. Not only was the company of a top aide to DeConcini deeply in debt to Lincoln Savings, Keating had kept important financial information related to the Continental Ranch deal secret from investors and thrift regulators--for a little longer.
Cole said in a deposition that it never occurred to him that Keating was trying to hide information from federal regulators by keeping R.A. Homes from going public. Ober says the SEC already had a draft of R.A. Homes' disclosure statement so the company was not hiding anything from regulators.
On the same day Keating and R.A. Homes signed the $30 million debt deal, Ed Gray left office, his term as chairman of the Federal Home Loan Bank Board expired. His departure was celebrated by Keating and DeConcini.
DeConcini's pleasure with Gray's exit was revealed during the Senate Ethics Committee hearings. In a note to Keating, DeConcini said: "How thoughtful and insightful you have been in this area. Maybe things will change now that he [Ed Gray] is gone. I sure hope so."
By the end of 1987, Keating had failed to sell the Continental Ranch property and, rather than paying R.A. Homes a $2.5 million profit for holding title to the land for a year, Keating asked R.A. Homes to make a 10 percent interest payment on the $20 million Continental Ranch loan extended a year earlier.
Under the terms of the loan, R.A. Homes could simply have walked away from the deal by returning the land to Lincoln Savings. But R.A. Homes agreed to Keating's new terms, Cole said in a 1991 deposition, because Keating had just invested a fresh $30 million in the company.
Cole would add a new twist to this story in 1992 testimony in the bondholders' trial. Cole testified that Keating demanded an interest payment on the Continental Ranch loan during the time R.A. Homes was preparing to go public in the spring of 1987, rather than the end of 1987.
"We were in the process at that point in time of doing a public offering ourselves with Smith Barney, so we didn't have any choice but to make the interest payments so we wouldn't be in default when we went to the public market," Cole said in sworn testimony.
But records from the same trial and Cole's own statements in depositions make it clear that the interest payment wasn't requested until December 1987, well after R.A. Homes had abandoned its plans to go public.
Rather than not having any choice to continue doing business with Keating as Cole testified in 1992, the company could have broken off any further dealings with Keating.
By December 1987, Ober's homebuilding company was facing serious cash-flow problems, in large part because of the two huge loans it took out with Lincoln. The company was facing a $1 million interest payment every quarter, stemming from the $30 million junk-bond deal and a $2 million annual interest payment related to the Continental Ranch deal.
Adding to the problems was the sudden collapse of the real estate market in Arizona, making it unlikely that the Continental Ranch land would be sold in the near future.
But rather than looking for a new business partner or just defaulting on the Continental Ranch loan, R.A. Homes continued working with Keating to the point of helping Keating out of a fizzled real estate deal.