Beazer Homes USA is trying to make peace with its debt holders, offering to pay them extra if they agree to overlook the fact that the company is late in filing its earnings report and promising to sign an agreement that requires the company to file the reports on-time in the future.
The holders of Beazer's senior and senior convertible bonds have sent the Atlanta-based builder notices saying it is in default of its agreements with them because it has not delivered them a copy of its financials for the second quarter of this year.
Beazer has said it is not in default because there is nothing in their agreements that require it to file quarterly reports with the U.S. Securities and Exchange Commission (SEC), only requirements that it give the bond holders copies after it files the documents with the SEC. The builder recently sued the bond holders, asking a judge to agree to its interpretation of the agreement and ban the bond holders from calling the debt.
While the builder says it still stands by its interpretation of the agreement, it wants to settle the issue by asking bond holders to agree to amend the agreement to more specifically spell out that the company is only required to give the bond holders copies of its SEC filings after it has filed them with the agency, that it is not required to file documents with the SEC under the current lending agreement, and to amend the document and give the company a waiver.
In return, Beazer is agreeing to further amend the agreement to require that it file notices with the SEC and give copies to the bond holders after May 15 of next year. It is also offering a cash consent fee to the bond holders who agree to the changes. The amount would be determined by a formula that multiplies $5 by a ratio of aggregate principal amount of the relevant series of notes outstanding on the consent date to the principal amount of the relevant series of notes that the company has received and accepted consents for each $1,000 of principal on the notes.
Beazer slipped behind on its financial reporting after an independent auditor, hired by the builder in the wake of federal investigations into its mortgage origination practices, found accounting issues that Beazer has said will require it to restate its financials for the past several years.
Last week, the company issued preliminary findings of its independent investigators saying that it found evidence that its mortgage lending arm violated HUD rules for down payments on federally-backed FHA loans. The investigations into the company's lending practices began after the Charlotte Observer printed a series of stories documenting a high rate of foreclosures among Beazer's North Carolina homes.
The auditors also reported that the company violated generally accepted accounting principles by putting aside too much for the development of communities and homes for several years and then flooded that extra cash into earnings for 2006. Another GAPP error occurred in its home lease-back/sale program. The net result of correcting the errors should be a slight increase in profit, the company estimates.
Beazer fired its chief accounting officer Michael T. Rand in June after discovering that he was attempting to destroy documents in relation to the investigation into its mortgage origination business.
In February ,Beazer fired its general counsel Kenneth Gary due to a "pattern of personal conduct, which includes violations of company policies."
In March, the company's chief financial officer Jim O'Leary announced his resignation from the company to become CEO of Kaydon Corp.