After filing for bankruptcy under Chapter 11 for its home building subsidiaries on Tuesday, the executive team at TOUSA on Thursday secured $135 million in much needed cash to keep the business operating while management attempts to restructure.
Judge John K. Olson of the U.S. Bankruptcy Court in Fort Lauderdale granted interim approval of the debtor-in-possession financing, provided by Citigroup Global Markets, during a hearing on Thursday. The move was called a "relief" by CEO Tony Mon in a company statement, even as the court has to complete a final approval of the financing agreement.
Management intends to spend the funds on normal operating expenses, including employee wages, construction costs, and supplier payments.
While the financing is essential in the short term to ensure business continuity, it adds senior debt to the company's already burdensome $1.7 billion debt load, as stated in the company's most recent 10-Q filing with the Securities and Exchange Commission. Two defaults on interest payments in January on a collective $685 million in senior and senior subordinated notes preceded TOUSA's bankruptcy announcement.
The company's debt problem, exacerbated by the faltering real estate market, has its roots in its 2005 joint venture to acquire the assets of Transeastern Properties for $857 million. The venture was supposed secure the growing company's future by adding 22,000 choice lots in a robust Florida housing market to the company's land portfolio. As the downturn has protracted, falling home and land prices collided in a perfect storm with dwindling new home sales to trigger some re-margin obligations on the venture. Consequently, TOUSA has had to increase its equity in the deal, mainly by securing roughly $506.8 million in first- and second-lien debt.
However, as part of management's restructuring plan, it will exchange bond debt for equity, providing senior note holders with substantially all of the company's stock, as well as an interest in and potential proceeds from a litigation trust.
