Beazer Homes USA is sweetening the pot it is offering the holders of $1.5 billion in its bonds, offering them more cash to overlook the fact that the company is late in filing its earnings.
The Atlanta-based builder on Tuesday (Oct. 23) also extended from Oct. 24 to Oct. 26 the deadline it had set for getting approvals for various waivers and of the its covenants with its bond holders.
On Oct. 15, Beazer made the first offer to its bondholders, offering money in return for waiving any defaults it might have triggered by not filing earnings reports with the U.S. Securities and Exchange Commission since the June 30 quarter end.
The holders of Beazer's senior and senior convertible bonds have sent the builder notices saying it is in default of its agreements for not filing the earnings reports.
Beazer says it is not in default because there is nothing in its agreements that requires it to file quarterly reports with the SEC, only requirements that it give the bond holders copies after it files the documents with the SEC. The builder has sued the bondholders and asked a judge to agree with its interpretation of the agreement and ban the bondholders from calling the debt.
While Beazer says it still stands by its interpretation of the agreement, it wants to settle the issue by asking bond holders to approve a settlement out of court. In addition to asking for the covenant waiver, it is also asking the investors to amend their agreements to restrict Beazer's ability to secure debt over $700 million until it has had four consecutive fiscal quarters with a consolidated fixed charge coverage ratio of at least 2.0 to 1.0.
Beazer also considerably upped how much it was willing to pay for the bond holders' agreeableness. Now it is offering an amount that would be determined by a formula that multiplies $12.50 by a fraction with the numerator equal to the aggregate principal amount of the relevant series of notes outstanding on the consent date and the denominator equal 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. Originally it was offering $5.
This is the latest chapter in a saga that began when 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. The company hired the auditor.
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 principals 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 it fired its general council 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.