WCI Communities and its lenders have reached an agreement on amendments to two of its credit agreements that will take the company out of default on its loans, the company announced Wednesday afternoon. The news sent shares of WCI up 15% to $2.44 in heavy trading on the New York Stock Exhange.
January 16 was the company's most recent deadline to reach an agreement or face a potential loss of its loans. WCI said it was able to come to agreement with its lenders on modifications to its senior secured revolving credit agreement, as well as its term loan agreement, that would "modify, suspend or waive certain covenants and provide the company with greater operating and financial flexibility to allow the company to manage its business during this industry downturn."
The company has been violating terms on those two loans since last fall. Initially the lenders gave the company an extension for violating its fixed charge until December 7, then extended it until January 7, then again to Wednesday January 16.
The exact terms of the loan changes were not released. The company only said the new agreement, which is good through June 30, 2009, would wave "certain covenants." In return, WCI now has less money available under its revolving line of credit as well as its term loan, has converted a part of the revolving line to non-revolving credit, and has agreed to pay more for the loans.
If negotiations had failed, the company had said its financial viability would have been in question.
"At this time, it is not certain that we will reach agreement or obtain approval of the anticipated longer-term amendment," the company said in its last earnings release. "The amendment will be expensive, and there can be no assurance that we will be able to comply with the amended covenants and other requirements."
If no agreement was reached, the lenders would be able to foreclose on collateral and demand payment of the loans in full. That could have unleashed a cascade of similar moves by the company's other lenders, leaving WCI looking for other sources of cash that might not appear, "which could impair our ability to maintain sufficient working capital," the release warned. "Either situation could have a material adverse affect on the solvency of the company."
WCI's concentration in the Florida market has been a big part of the Bonita Springs, Fla.-based company's problems, coupled with an unprecedented number of cancellations of its expensive towers units in its Florida market that were scheduled to close last year.