TOUSA's post-Chapter 11 bankruptcy reorganization has encountered yet another delay as the court seeks to sort out a $1 billion fraudulent and preferential transfer claim against the company's secured lenders.
The official committee of unsecured creditors on July 15 filed an adversary complaint against a group of secured lenders that alleges the lenders forced certain TOUSA subsidiaries to unfairly guarantee roughly $800 million in debt related to the company's Transeastern Homes joint venture, a move that unnecessarily drove some of the subsidiaries to insolvency.
The issue dates back to a year ago when the TOUSA executive team secured $506.8 million in first- and second-lien financing to essentially buy out the debt related to the company's 2005 JV with Florida developer Art Falcone, bringing the whole venture onto the company's balance sheet. The deal put to rest lawsuits filed by both financiers of the deal and unhappy shareholders who argued that management had failed to fully disclose the venture's risks.
However, in addition to the collective debt the unsecured creditors group claims was unlawfully transferred onto subsidiaries' balance sheets, the committee aims to recover payments the subsidiaries already made on that debt and stop any portion of the $210 million 2007 tax refund TOUSA received in June from going directly to the secured lenders. The committee argues that any such payment to the secured lenders constitutes an unfair preference because any interest the lenders have in the refund would have arisen post-bankruptcy filing.
The suit marked a second accusation of fraudulent conveyance. In February, following Judge John K. Olson's interim approval of $135 million in debtor-in-possession financing from Citigroup Global Markets, a group of 10 senior noteholders and senior subordinated noteholders issued an objection to TOUSA's proposed restructuring plan and claimed fraudulent conveyance with regard to TOUSA management's July 2007 refinancing of the Transeastern joint venture debt.