Meritage Homes filed notice Feb. 10 of an exchange agreement, retiring $4.3 million of the principal amount of its 7.731% senior subordinated notes with a maturity date of 2017 in exchange for 149,994 shares of common stock in a private transaction.

"The exchange of debt for equity by Meritage will improve the company's leverage ratios and increase its tangible net worth. In addition to improving the company's balance sheet, the retirement of notes will reduce the company's ongoing interest expense," Meritage stated in a release.

The builder expects to discuss additional exchanges with the noteholder, which owned approximately $29 million of senior subordinated notes prior to the recent exchange. Potential transactions will be evaluated in light of existing market conditions, the company's financial position, stock and debt trading prices, and other factors.

During the company's 4Q2008 earnings call, CEO Steve Hilton and CFO Larry Seay said the company had built a cash position of $206 million cash at yearend, and expected to collect approximately $112 million in tax refunds during the first few months of 2009.

The company is at the end of the two-year tax carryback limit, with 2006 being its last profitable year. Hilton said that if the proposed five-year carryback is adopted by the federal government in the stimulus bill currently working its way through Congress--a likely possibility, he said--the company could reverse much of the $127 million deferred tax valuation allowance it had as of the end of the year.

Fourth quarter reports show the company with a net loss of $79 million, largely due to pre-tax real estate-related and joint venture impairments of $109 million, plus a $1 million impairment of intangible assets, partially offset by a $30 million net tax benefit.

Net orders declined 57% from 2007 to 2008 after a 56% cancellation rate in the fourth quarter. The total dollar value of sales for the quarter was off 59% year-over-year, reflecting a further decline of 14% in average sales price.