Realogy parent wants to reduce debt, explores backup plan to IPO

By Angela McDaniels

Tacoma, Wash., Aug. 7 - Domus Holdings Corp., the parent company of Realogy Corp., is evaluating potential financing transactions in case its planned initial public offering falls through, according to the company's latest 10-Q report filed with the Securities and Exchange Commission.

The company registered a $1 billion IPO on June 8. It expects to use substantially all of the proceeds to repay debt.

Liquidity suffering

Domus said its liquidity position has been negatively affected by its substantial interest expense and the downturn in the real estate market. These have resulted in negative operating cash flows, and the company expects to continue to experience negative cash flows during the next 12 months.

As of June 30, the company had $7.6 billion of debt and $138 million of cash and cash equivalents. It had $124 million of available capacity under its revolving credit facility as of Aug. 6.

If conditions in the real estate market do not deteriorate, the company believes it will be able to meet its cash flow needs through June 30, 2013 using its revolver and other sources of liquidity even if the IPO is not completed.

On the other hand, if the IPO is not completed and unfavorable conditions in the real estate market and general macroeconomic conditions do not significantly improve or if the company's total debt is not materially reduced, Domus will have to seek additional sources of working capital, including obtaining additional financing and deferring or reducing spending, according to the filing.

The company said it will continue to evaluate potential financing transactions, including issuing equity securities, refinancing some tranches of its debt, issuing incremental debt, obtaining incremental letters of credit and extending maturities as well as potential transactions with third parties or majority shareholder Apollo Management Holdings, LP.

Targeted debt reduction

The company amended the registration for the IPO on July 20. According to the amended S-1 filing with the SEC, the company plans to use the IPO proceeds

• To prepay all of the outstanding $650 million principal amount of second-lien term loans under the incremental loan feature of its senior secured credit facility;

• To repurchase or redeem about $64 million of 10½% senior notes due 2014 and $41 million of 11%/11¾% senior toggle notes due 2014 substantially concurrently with the closing of the IPO;

• To repurchase or redeem $160 million of 12 3/8% senior subordinated notes due 2015 on or after April 15, 2013; and

• For working capital and general corporate purposes.

In addition, all of Realogy's 11% series A convertible notes due 2018, 11% series B convertible notes due 2018 and 11% series C convertible notes due 2018 will be either converted or redeemed at 90% of par if the IPO is completed.

Domus said the holders of about $2 billion of the convertibles have indicated that they plan to convert their convertibles when the IPO closes.

Domus owns Realogy, a Parsippany, N.J.-based provider of real estate services.

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