Unable to maintain sufficient interest reserves on $94 million in debt, beleaguered Virginia-based Comstock Homebuilding Cos. has stopped making scheduled interest or principal payments on the debt and has hired Brad Foster of FTI Consulting as an interim chief restructuring officer.
Relatively new to FTI, Foster has more than a decade's worth of experience in real estate and home building. He served as vice president of operations for the Sarasota, Fla., division of Morrison Homes--now part of the recently merged Taylor Morrison--for more than nine years and was the corporate controller at former UDC Homes prior to that.
Ceasing those payments puts the company in default on its loan agreements, some of which have reached maturity. A company-issued statement said that if it cannot renegotiate terms with its lenders, it may have to stop making payments on its other loans. As of June 30, the company had roughly $157 million in debt outstanding.
The announcement fuels speculation over whether a bankruptcy looms in the future for the publicly-held company, which had achieved record growth during the Washington, D.C., condo boom. Other troubled home building companies have gone down a similar route, attempting to reorganize before surrendering to insolvency. Both TOUSA and Kimball Hill Homes, for example, hired chief restructuring officers earlier this year to help restructure overwhelming debt and evaluate strategic alternatives; TOUSA has since filed for Chapter 11 bankruptcy protection in Florida, and Kimball Hill declared bankruptcy in Illinois on April 23.
After limping through 2007, the company appeared to be getting on firmer financial footing in March 2008. KeyBank National Association gave the company a three-year $40 million revolving loan facility, which allowed it to refinance debt related to two struggling projects--Eclipse at Potomac Yard and Townes at Station View--and restructure $30 million in senior unsecured notes. The latter knocked $15 million off the principal amount of the unsecured notes, freeing up much-needed working capital.
However, sales remained challenged. For 1Q2008, the company netted 34 new orders across its operations in the Washington, D.C., metro area, Georgia, and North Carolina, for net new order revenue just over $10 million. And the company had an operating loss for the quarter of $3 million.
In early April, the company's auditors, PricewaterhouseCoopers, indicated that, following an audit of the company's 2007 financials, there was doubt whether the company would continue operating as a going concern in 2008, given the market conditions and the amount of debt coming due in 2008.
At the same time, Comstock's Georgia-based subsidiary Mathis Partners filed for Chapter 11 bankruptcy reorganization after lender Haven Trust Bank refused to renegotiate new terms on a $5 million loan related to its Gates of Luberon project. Mathis Partners was a venture formed by Parker Chandler Homes, which Comstock acquired in early 2006.
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