Fitch, Inc., the debt ratings service, on Nov. 15 downgraded the Issuer Default Rating on TOUSA, Inc. to a 'C' from 'CC,' the lowest rating that can be put on a company that has not already defaulted.
Fitch took the action after TOUSA, which delayed the filing of its third-quarter results until late on Nov. 14, reported a $619.7 million net loss for the quarter and stated that it was not certain of its ability "to remain a going concern." Fitch continues to keep the company on Ratings Watch Negative, which means the ratings service believes there could be more disclosures that further diminish the quality of the company's outstanding debt.
Fitch performed a liquidation analysis on the company and determined that only holders of $700 million in TOUSA's secured revolving credit facility and $200 million in secured first-lien term loans have a good chance--70% to 90%--of getting paid if the company defaults. Fitch put the chances of recovery at 10% to 30% on TOUSA's $300 million secured second-lien term loan and at 0% to 10% on the company's senior unsecured notes, senior subordinated notes and preferred stock.
In taking the ratings action, Fitch explained, "The completion of the Transeastern JV global settlement left TOUSA in a highly leveraged position at a time when housing market conditions are extremely depressed. The company's liquidity position also remains uncertain as the company faces further possible covenant violations under its bank credit agreements and bond indentures."
TOUSA on Wednesday said it was considering several options, including a Chapter 11 bankruptcy filing as well as a restructuring that would exchange equity in the company for outstanding debt. It said it has asked bondholders to organize as a group in order to discuss restructuring alternatives.