A deteriorating housing market and severe credit crunch have knocked over another big domino. First it was Levitt & Sons, with nearly half a billion dollars in liabilities, which filed for protection from creditors in November. And today, Hollywood, Fla.-based TOUSA, the industry's 13th-largest home builder in 2006, announced that it, too, was filing Chapter 11 in U.S. Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division. The company's petition with that court lists $2,276,576,000 in assets and $1,767,589,000 in liabilities, as of Sept. 30, 2007.

That filing would place under bankruptcy protection the parent company in the United States and all branded home building operations, which include Newmark Homes, Trophy Homes, and Engle Homes. However, TOUSA's title, insurance, mortgage, and information services subsidiaries are not included in this filing, and TOUSA's CEO, Tony Mon, emphasized that there would be "no interruptions in services" under Chapter 11, and that the company would meet all of its warranty obligations.

The builder has received support from more than half of its secured creditors for a prepackaged reorganization plan that would restructure its equity and all of its unsecured debt. TOUSA provided few details about this plan during a teleconference this morning, during which Mon and the company's CFO Tommy McAden did not take questions. However, McAden essentially confirmed a Bloomberg report that under the restructuring deal, senior bondholders would trade $550 million in debt for the reorganized company's new common stock and interest in a litigation trust. The company's unsecured creditors-led by Wilmington Trust, with two claims of $300 million and $200 million, respectively-would also get new common stock and a share of the trust. TOUSA's subordinate bondholders, owed $510 million, would likely get warrants to purchase new stock and a share of the litigation trust.

As of Dec. 31, TOUSA had 59,604,168 common shares and 117,500 preferred shares outstanding. Its petition states that it is authorized to issue 975 million common shares and 3 million preferred shares of stock.

The builder has negotiated $150 million in debtor-in-possession financing from Citigroup Global Markets, which if approved by the court would allow the company to finance its reorganization while keeping its home building businesses functioning. The company has sought court approval to continue paying its employees their wages and benefits so it can move forward on completing construction of around 2,500 homes it has in backlog. The petition states that this loan is "expandable" to $650 million "upon occurrence of certain events" that were not spelled out.

"We decided to take decisive action to ensure TOUSA is around for the long-run," says Mon, who calls this current downturn "one of the worst housing recessions I have ever seen." During the teleconference, Mon and McAden emphasized that the company's goal under Chapter 11 was to prevent interruptions in its home building operations or customer services. "It will be business as usual," Mon states, adding that all suppliers would be paid for work completed while the company is in bankruptcy, and that "customers can remain confident that their homes and communities will be completed." TOUSA has established a bilingual toll-free hotline to answer customers' questions. The builder has also contracted with PWC, which administers its Home Builder's Limited Warranty program, to provide a free, 10-year supplemental warranty to any buyer who purchases one of TOUSA's homes through April 30. Zurich North America is insuring those warranties.

Through the first nine months of its latest fiscal year, TOUSA, which is 70 percent owned by the Greece-based Technical Olympic SA, reported a 10.6 percent decline in home building revenue, to $1.54 billion, and an earnings loss of $817.7 million. TOUSA missed a Jan. 15 interest payment on $200 million in 7.5 percent senior subordinated notes due 2015. The company also missed a Jan. 1 payment on $300 million in 9 percent senior notes due 2010 and $185 million in 10.375 percent subordinated notes due 2012.


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