Comstock Homebuilding Cos. announced early Jan. 29 that it has entered into a forbearance agreement with Guggenheim Corporate Funding in regards to $13.5 million outstanding under the company's secured Penderbrook project loan. The company had previously received a notice of default from Guggenheim on Aug. 22, 2008.
"Since announcing in early 2008 our intent to focus on restructuring our debts, we have been successful in restructuring over $142 million of debt," said Christopher Clemente, Comstock's chairman and CEO, in a statement. "We believe that the arrangement we have reached with the lender at Penderbrook is particularly important because it allows for both the orderly completion of the project and the recovery of the significant amount of capital we have invested in the project."
The new agreement allows Comstock to operate the property essentially as a rental community while waiting for market conditions to stabilize and improve. Terms of the forbearance agreement also provide for additional incremental extensions until March 6, 2012, provided certain unit delivery requirement thresholds are met. The interest rate in effect for each calendar year will be determined on the last day of the year and applied retroactively, based upon the cumulative unit settlements during the year.
The interest rate will decrease incrementally from a high of LIBOR +1,400 bps to a floor of LIBOR +400 bps based on a range of seven to 20 unit settlements occurring in 2009 and a range of 16 to 26 unit settlements in 2010. Prior to the execution of the forbearance agreement, the interest rate spread on the loan was fixed at 600 bps over LIBOR. In addition, the forbearance agreement provides Comstock a one-time option to retire the note prior to May 26, 2009, at a discount of between 9% and 16% depending on when the option is exercised.
Since year end of 2007, Comstock has reduced $73 million of outstanding debt, and as of Dec. 31, 2008, was holding $98 million in debt.
Clemente added that the company has reduced overhead costs and overall compensation costs by more than 50% during 2008. He also stated that the company will not be paying cash or stock bonuses in connection with 2008 results and that it has reduced planned executive compensation for 2009 as well.
"During 2009, we will remain focused on our goals of preserving and enhancing our liquidity, reducing costs, rebuilding backlog, generating cash flow, and positioning Comstock for a return to profitability when the housing market recovers," Clemente said. "We remain committed to achieving our goal of restoring shareholder value."