Tarragon liquidity woes continue, going concern status threatened

By Caroline Salls

Pittsburgh, Dec. 24 - Tarragon Corp. is seeking loan maturity extensions and amendments to debt agreements as continued liquidity troubles are threatening the company's going concern status, according to a 10-Q filed with the Securities and Exchange Commission.

According to the 10-Q, the company's ability to continue as a going concern will depend on its ability to complete planned property sales, to modify financial covenants under its debt agreements and to restructure, extend or refinance its debt obligations.

Tarragon said it is still exploring its strategic and financing alternatives and negotiating with its lenders to reinstate debt obligations that remain in default or have matured.

However, if Tarragon is unable to obtain enough liquidity to fund its operations in the near term or if it is unable to negotiate acceptable terms with its lenders, the company may be forced to take other actions in light of its current liquidity situation.

The company said some of its loans from Fannie Mae and General Electric Capital Corp. were reinstated as of Dec. 21, but Tarragon is still in default on some loans from these lenders, and it has not paid on some loans that have matured since Sept. 30.

In addition, the company said it received notices of default, as guarantor, from the lenders of three unconsolidated entities because August and September debt service payments were not made.

Although these loans have been restored to good standing, they have subsequently matured, prompting the company to seek maturity extensions.

Also, as of Sept. 30, Tarragon was not in compliance with financial covenants under some of its existing debt agreements, and failure to comply with these covenants could constitute an event of default and result in acceleration of payment.

The company said it also failed to meet the financial covenants for $466.7 million in consolidated debt, although $71 million has been satisfied through sales of the properties or condominium inventory securing the debt or refinancing.

An additional $19 million is expected to be satisfied through the sale of the property securing the debt, and a $157.1 million balance due to Barclays is expected to be assumed by the buyer of the six properties securing the debt.

Tarragon said it has been granted forbearance from the lender of another $14.4 million through June 30, 2009, and it is negotiating with the holder of its $125 million of subordinated unsecured notes for a long-term modification or waiver.

The company said it also intends to seek waivers or modifications of the covenants from the lenders of the remaining $80.2 million of consolidated debt for which it did not meet the financial covenants at Sept. 30.

Tarragon said it also received a notice of default in August on its $5.8 million 8% convertible notes based on a cross-default provision, and the company received an acceleration notice on the notes in October for failing to make the Sept. 15 interest payment.

The company said it has offered the convertible noteholder $232,000 in past due interest in exchange for reinstatement of the notes.

Financial results

As of Sept. 30, Tarragon had $1.484 billion in consolidated borrowings, and the company reported a net loss of $370.1 million for the nine months ended Sept. 30, as well as a $92.5 million stockholders deficit.

For the nine months ended Sept. 30, the company recorded $6.2 million in net cash provided by operating activities, compared to net cash used in operating activities of $235.4 million for the nine months ended Sept. 30, 2006.

Tarragon said the increase in cash provided by operating activities was mostly related to a decrease in purchases of homebuilding inventory.

The company said it believes that its real estate portfolio and development platform have significant equity value in excess of existing debt.

Tarragon is a New York homebuilder.

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