In a court hearing on March 25, Arizona-based Trend Homes received approval for a proposed long-term cash collateral plan designed to support the company's continued operations during Chapter 11 reorganization.
On Jan. 31, the company joined the growing ranks of home builders unable to pull out of the industry's steep nose dive and confirmed it was selling operations to a Phoenix, Ariz.-based private investment firm, Najafi Cos.
The $65 million deal for the assets of Trend and its affiliates is predicated on the agreement that the company will reorganize under the protection of Chapter 11 in U.S. bankruptcy court for the District of Arizona.
This week's approval of payroll and a cash collateral stipulation gives the company breathing room as it continues to negotiate with lenders in an effort to emerge from the restructuring.
"We are getting close to a long-term deal with the banks," Trend CEO Reed Porter told Big Builder. "The big lenders really want to be out of this by the end of May. That's why they are supporting the two-month cash collateral plan."
Next month, Porter said that the Najafi Cos. expects to have a letter-of-intent level term sheet signed for the longer-term plan. It will amend the original asset purchase agreement that was submitted to the court and reflect the new terms that are currently being negotiated between the Najafi Cos. and the banks.
As a part of the reorganization, Porter indicated that at least two of Trend's lenders are planning to take their assets back. Bank of America has what Porter described as a "small loan" with Trend and has indicated an unwillingness to agree to any terms on one community. "Paying them back in full is not possible at this point," said Porter.
In addition, another undisclosed lender holds debt for Trend on an undeveloped piece of land and has indicated that they want to claim their asset. "I would expect they may either sell it off to an investor at a really low price or jut hang on to it for a while," Porter said. "Right now, no one is breaking ground on anything in Phoenix."
In the meantime, the longer-term cash collateral plan should ease some of the strain on operations caused by the cloud of bankruptcy. Previously, cash had only been approved on a one-month basis. "It's been uncomfortable," admitted Porter. "The subs are concerned. Certainly, they don't want to go out and work and not get paid. So it has definitely been a tedious process, working with them and trying to get the assurances and provide them with 'comfort' orders from the court to show them that the court is saying, 'You will get paid.'"
Obviously, the uncertainty of the future weighs on Trend's relationships with suppliers and potential buyers as well. "That's the reason we wanted a pre-planned filing," Porter stated. "We wanted to have a strong buyer so we could give our customers the assurance, as best we can, that we have a strong partner. The message to employees and customers is that we'll [emerge] and be stronger than we were before, ... and so far the customers have accepted it."
Porter said that sales have been anemic since the company filed for bankruptcy, but added, "So is the market. We have been following our competitors, and while our sales are lagging a bit from where they should be, that's mainly because, since we are in the BK, we haven't priced to market like we would have [outside of bankruptcy]. We are just waiting to get through this pricing to know what we should or shouldn't do in terms of pricing to maximize our creditors' value."
Learn more about markets featured in this article: Phoenix, AZ.