Lenders for Kimball Hill late on April 11 granted the beleaguered home builder another extension on its debt. The previous waiver, secured on March 14, expired April 10. The company will now have until May 9 to work with its lender group to reposition the company to avoid a full-blown liquidity crisis that could land the company in bankruptcy.

CEO Kenneth Love echoed his statement from the previous month in company's press release: "We are engaged in active discussions with our lenders, and we appreciate their support to extend the current waiver agreement to help facilitate a long-term amendment. During this period, we continue home building operations as usual."

Trouble surfaced at the Rolling Meadows, Ill.-based company this past fall, when the company delayed filing its 10-K for its fiscal year ended Sept. 30, 2007, with the Securities and Exchange Commission. At the time, management revealed that the company was out of compliance with some of the covenants related to its senior credit facility, most notably its minimum tangible net worth requirement. The company currently counts more than 30 covenant violations.

Initial negotiations advanced slowly. At the time, company CFO Ed Maddel provided Big Builder with insight into the process. He said his biggest challenge was providing his lenders with any kind of guidance for future performance. "It's very difficult for us to project what we expect to have in sales and revenue," he said. "That's going to tell me how much debt I'm likely to have, how much I'm going to have to service debt, and what decisions I'm likely to make to potentially reduce debt."

In January, management obtained an initial limited duration waiver and amendment that bought a little time and money; lenders agreed to allow the company to access an additional $10 million in credit and had permission to seek another $5 million to satisfy cash flow needs until March 14 while additional financing was negotiated.

But as the company continued talks, business conditions deteriorated further. The company recorded a fiscal year 2007 loss of $220.5 million. And then, despite diligently cutting costs, selling off land, dropping home prices, and exiting less profitable markets, in its fiscal first quarter of 2008, which ended Dec. 31, 2007, the company lost $46 million--more than double its loss in the same period the previous year.

Moreover, the company is entangled in two failing joint venture arrangements in Nevada. Between the two, Kimball Hill is not only responsible for more than $60 million in debt, but take-down arrangements require the builder to buy another $59 million in land by May. The company's worsening position led management to hire Andrew Hede, a managing director of New York-based restructuring firm Alvarez & Marsal, as Kimball Hill's chief restructuring officer in February.

While the company officially stated that bankruptcy is an option on the table, reports from local sources in the Chicago market have suggested that the company is scrambling to find an outside source of recapitalization. However, whether management can close a deal of that magnitude before the distressed company's next deadline remains questionable.