Pressure mounted January 2 on Technical Olympic USA's management team to make some major moves to restructure the business or face insolvency, according to an 8K filing with the Securities and Exchange Commission.
As of January 1, the company had not made its semi-annual interest payments on two sets of notes. Although the principal on $300 million in senior notes and $185 million in senior subordinated notes aren't due until 2010 and 2012, respectively, if the company fails to make the interest payments within 30 days of the due date, it could face immediate repayment of those debts. Moreover, an immediate repayment also could trigger immediate repayments of other loans, effectively pulling the company into a fatal cash crunch.
For months, management, aided by various financial and management consultants from Kroll Zolfo Cooper and Lazard Freres, has been trying to ease the company's growing cash crisis. Slip-sliding home prices and land values in the hard-hit Florida market have left the company's balance sheet vulnerable to risk from its highly leveraged $857 million joint venture to acquire the assets of Florida-based Transeastern Homes in 2005.
Up until now, TOUSA has been able to get temporary relief from its lenders. In late October, it renegotiated a first credit easing. In mid-December, it paid a fee of $1.6 million to lenders to consent to amendments of both its first lien term loan and revolving credit agreement.
In the meantime, management has shuffled some of the executive ranks, removing its regional layer of management. Effective Dec. 21, 2007, former EVP of the company's Atlantic and Texas region, George Yeonas, moved into a new position as executive vice president and COO for TOUSA's home building operations. The realignment also included the termination of three additional EVPs. As of Dec. 31, 2007, Harry Englestein, Sr. EVP of the Florida Region and co-founder of Engle Homes; John Kraynick, EVP of the Florida region; and Mark Upton, EVP of the West Region, are no longer with TOUSA. Company spokesperson Jennifer Mercer says, "The company is in the process of right sizing its infrastructure," and transitioning from a regional reporting structure to a divisional one is part of that process.