TOUSA, Inc. on Tuesday morning filed for Chapter 11 bankrupcty for its home building subsidiaries in U.S. Bankrupty Court in Fort Lauderdale, Fla., according to a spokesperson for the company.
TOUSA also filed notice with the Securities and Exchange Commission of its intent to enter the prearranged bankrupcty agreement with its creditors that would allow the company to continuing operating while it restructures its equity and all of its unsecured debt. More than half of the company's senior note holders have approved the plan, the company said.
The announcement came after two defaults on interest payments in January on a collective $685 million in senior and senior subordinated notes. As part of the restructuring deal, management will exchange the bond debt for equity, providing senior note holders with vitually all of the company's stock, as well as an interest in and potential proceeds from a litigation trust.
Jennifer Mercer, a spokesperson for Hollywood, Fla.-based TOUSA, said the bankruptcy filings will have little impact on day-to-day operations. "There will be absolutely no change in the normal course of business," she said. "Homes will be built; homes will be sold; employees will be paid. Customers can expect no interruption."
However, whether TOUSA is able to reemerge from insolvency, as NVR did following a bankruptcy filing in the 1990s, remains in question. The company has lost 98% of its market value in the past year; its stock has been delisted.
TOUSA's cash crunch, exacerbated by the faltering real estate market, has its roots in its 2005 joint venture to acquire the assets of Transeastern Properties for $857 million. The venture was supposed secure the growing company's future by adding 22,000 choice lots in a robust Florida housing market to the company's land portfolio.
However, the company put little equity--roughly $100 million--into the deal. As the downturn has worn on, falling home and land prices collided in a perfect storm with dwindling new home sales to trigger some re-margin obligations on the venture. Consequently, TOUSA has had to increase its equity in the deal, mainly by securing roughly $506.8 million in first- and second-lien debt.
Citigroup Global Markets has proposed shoring up the company's immediate future by providing TOUSA with $150 million in debtor-in-possession financing. A court hearing is scheduled for tomorrow. If the court approves the financing, management would be able to avail of the funds to keep operations afloat during the proceedings.
The bankruptcy announcements apply to the company's home building subsidiaries TOUSA Homes and Newmark Homes, as well as associated brands Engle Homes, Newmark Homes, Fredrick Harris Estate Homes, and Trophy Homes; the company's title, mortgage, and insurance affiliates are unaffected.
TOUSA would be the second public builder to file for bankruptcy protection and the largest one to date. Levitt Corp.'s (LEV) home builder subsidiary Levitt & Sons went under in November. Large private builders Kara Homes, Neumann Homes, and Dunmore Homes, among several other smaller private companies, also have fallen into insolvency.