Realogy projects $100 million second-quarter revolver reduction

By Jennifer Lanning Drey

Portland, Ore., May 16 - Realogy Corp. expects to decrease its revolver balance by $100 million by the end of the second quarter and have most of the remaining balance retired by October, Anthony Hull, chief financial officer of Realogy, said Friday during the company's first-quarter earnings conference call.

Realogy ended the first quarter with $45 million of outstanding borrowings under the revolver but had increased the amount to $340 million by May 12 in order to make cash interest payments and repay securitization facilities related to assets liquidated in the first quarter.

Realogy's debt repayment projection is based on its forecast that it will generate positive cash flow in the seasonally strong third quarter and benefit from liquidating its fixed-fee inventory of homes, Hull said.

However, immediately following those comments, he cautioned that due to the lack of assurance that projected improving year-over-year trends will actually occur in the second half of the year, "It is unclear whether the revolver reductions we expect will come to fruition to the full extent outlined."

"We will continue to be conservative with our cash spending and continue to focus on maximizing operating efficiencies in 2008 as warranted by market conditions," Hull said.

Realogy ended the first quarter with a senior secured leverage ratio of 4.2 times. The company is allowed a ratio of up to 5.6 times under its debt covenants.

During the question-and-answer portion of Friday's call, Hull said based on its current forecast, the company expects to be able to remain in compliance with the covenants moving forward.

When asked for the company's contingency plan if an ongoing downturn in the housing market were to occur, Hull said the company would draw on its revolver to the extent permitted under its debt covenants if its free cash flow were to be negative.

If the company begins to press against the maximum leverage ratio at any point, Realogy would work to impact EBITDA through continued cost reductions, reduced capital expenditures and the continued use of the payment-in-kind feature for its upcoming interest payments.

Cash falls dramatically

Realogy ended the first quarter with $2 million of available cash, down from $97 million at Dec. 31, with the decrease resulting from low seasonal operating activity, cash interest expense and working capital usage during the first quarter, Hull said.

The company expects its exit from the government relocation business to generate $50 million of cash in the third and fourth quarter, he said.

Realogy reported first-quarter capital expenditures of $11 million, down from $29 million in the comparable period of 2007.

The company reported net revenues of $1.05 billion, compared with net revenues of $1.37 billing in the 2007 period. Current-year EBITDA was $4 million.

Realogy reported a net loss of $132 million for the first quarter, compared with net income of $32 million in the prior-year period.

Realogy is a Parsippany, N.J., real estate franchisor.

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