Tarragon files Chapter 11 bankruptcy amid falling prices, slower sales

By Caroline Salls

Pittsburgh, Jan. 12 - Tarragon Corp. made a Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of New Jersey to implement a comprehensive reorganization under which the company plans to look to obtain additional outside financing and participation of a new investor or investor group, according to a company news release.

Tarragon said this step follows a period of financial losses brought on by falling prices and slower sales in the company's homebuilding division, restrictions on the availability of financing and declining real estate values.

"In the face of the challenging real estate sector and tight credit markets, Tarragon has made the strategic decision to restructure with the goal of putting the company's business on a solid financial footing going forward," chief executive officer William S. Friedman said in the release.

With adequate current liquidity and a commitment for $6.25 million in debtor-in-possession financing from an affiliate of Arko Holdings, Inc., the company said the Chapter 11 filing is expected to have no impact on the day-to-day operations of its property management subsidiary, Tarragon Management, Inc., or on the operation of the rental apartment properties in Tarragon's investment division.

The company did not file DIP financing terms as part of its "first-day" motions.

"Based on the discussions we have had with our unsecured noteholders and the financial support of Arko, we expect that we will be able to structure a consensual plan with our creditors structured to enable Tarragon to preserve the value of its property management and development platforms and maximize any return to creditors," Friedman said in the release.

Tarragon said it does not expect there to be any distribution to its equity holders in conjunction with the bankruptcy case.

As previously reported, the Tarragon board of directors is being advised by Lazard in connection with its evaluation of alternatives that may be available to maximize stakeholder value.

Tarragon entered into a restructuring support and forbearance agreement with the holders of its $125 million of corporate-level unsecured subordinated notes on Nov. 3.

Under the agreement, the subordinated noteholders have agreed to support Tarragon's financial restructuring and to refrain from exercising any of their rights under the terms of the subordinated notes through June 30, 2009.

As part of the financial restructuring, the subordinated notes and about $38 million of debt held by an affiliate of Tarragon chairman and chief executive officer William S. Friedman and president Robert P. Rothenberg will be restructured and become obligations of a reorganized Tarragon or an affiliated issuer.

Tarragon said Monday that the board will continue to explore all available alternatives, which may include all available forms and sources of financing, property sales or other strategic transactions, in connection with the implementation of an overall financial restructuring plan inside the Chapter 11 proceeding.

According to court documents, Tarragon had $840.69 million of assets and $1 billion in debt as of Sept. 30.

The company's largest unsecured creditors include:

• Taberna Capital Management LLC, New York, with a $125.97 million claim;

• AJD Construction Co., LLC, Leonardo, N.J., with a $2.9 million claim; and

• Omni Boys North Ltd., Fort Lauderdale, Fla., with a $1.03 million claim.

Tarragon is a New York homebuilder. Its Chapter 11 case number is 09-10555.

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