TOUSA executives had hardly gotten the beleaguered home builder's post-bankruptcy restructuring plan rolling before a small group of creditors stalled it out. The group, comprising both senior note and senior subordinated note holders, on Thursday collectively issued an objection to the restructuring plan, which included a debt-for-equity swap for senior note holders and an agreement for $135 million in debtor-in-possession financing from Citigroup Global Markets.

On Tuesday, Jan. 29, when management filed for Chapter 11 bankruptcy protection for its numerous home building subsidiaries, it noted that more than 50% of its senior note holders were amenable to exchanging the bond debt for equity in the reorganized company, providing senior note holders with substantially all of the new company's stock, as well as an interest in and potential proceeds from a litigation trust.

By the following day, support waned. Judge John K. Olson of the U.S. Bankruptcy Court's Fort Lauderdale division granted interim approval of the debtor-in-possession financing. Management said the funds were needed to pay normal operating expenses, including employee wages, construction costs, and supplier payments. The tentative approval granted Citigroup senior secured super-priority status, effectively putting the institution at the top of the list of creditors to be repaid. Subsequently, 10 creditors, represented by Miami-based law firm Genoves, Joblove & Battista, collectively filed an objection to the plan's terms, claiming that emergency financing was unnecessary.

Moreover, in the court document, the group accused the company of fraudulent conveyance in July, when the executive team brought the whole of its Transeastern Homes joint venture with Florida developer Art Falcone onto TOUSA's balance sheet. Management had secured roughly $506.8 million in first- and second-lien debt to essentially buy out the 2005 JV debt, putting to rest lawsuits filed by both financiers of the deal and unhappy shareholders who argued that management failed to full disclose the venture's risks. The creditor group stated that the parent company made TOUSA's home building subsidiaries--TOUSA Homes, Newmark Homes, and related brands--secure the debt with liens on their properties. By making the subsidiaries ultimately liable for the JV's debt, the financial move unnecessarily drove them to insolvency.

TOUSA spokesperson Jennifer Mercer said she was unable to comment on the creditors' objections but confirmed that the group included note holders on the company's $300 million in 9% senior notes due 2010 and $125 million in 7% senior subordinated notes due 2011. The company has a total debt load of roughly $1.7 billion, according to the company's most recent 10-Q.

The court's resolution with regard to the objection and the financing may turn out to be later rather than sooner. Despite TOUSA management's push to expedite both the financing approval and the immediate hiring of a host of finance and accounting specialists, Donald F. Walton, the acting U.S. trustee in the case, hit the brakes. Walton filed an objection with the court, asserting that the company's financial position did not mandate a waiver of the standard 20-day waiting period for approval.

The objecting creditor group included financial players Aurelius Capital Master, Aurelius Capital Partners, Attentus CDO I, Attentus CDO II, Trapez CDO X, GSO Special Situations Fund, GSO Special Situations Overseas Master Fund, GSO Credit Opportunities Fund, K Squared Capital Master Fund, and Lyxor/K Squared Capital Fund.