Tousa files Chapter 11 bankruptcy, secures noteholder support of debt-for-equity exchange restructuring

By Caroline Salls

Pittsburgh, Jan. 29 - Tousa, Inc. filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the Southern District of Florida to implement a restructuring that has received the support of more than 50% of its senior noteholders, according to a company news release.

Tousa said the senior noteholders' restructuring support agreement is subject to a "fiduciary out" clause that can be exercised by both the company and the noteholders under specific circumstances.

Under the proposed restructuring agreement, the senior noteholders and holders of general unsecured claims will receive substantially all of the common stock of the reorganized company under a debt-for-equity exchange, as well as an interest in proceeds received by a litigation trust that will be established under Tousa's plan of reorganization.

Subject to further negotiation, holders of the company's subordinated notes may receive a share of proceeds generated by the litigation trust and may receive warrants to acquire common stock in the reorganized company.

According to an affidavit filed by Tousa executive vice president and chief financial officer Tommy L. McAden, the restructuring term sheet includes an agreement that the company will explore an up to $200 million new-money investment, in addition to exit financing.

The senior noteholders will have the opportunity to participate in the new investment, and they will have the first chance to lead or backstop any new investment.

In addition, under the restructuring support agreement, the company and each of the consenting noteholders must agree to a business plan within 30 days of the bankruptcy filing, debtor-in-possession financing must be approved in 60 days, the company must file a plan of reorganization and related disclosure statement within 60 days of the bankruptcy filing, the disclosure statement must be approved within 120 days, and the plan must be confirmed within 180 days.

The company said its proposed restructuring is the result of the dramatic downturn in the U.S. housing market, which accelerated over the last several months because of severe liquidity challenges in the credit and mortgage markets, diminished consumer confidence, increased home inventories and foreclosures and downward pressure on home prices.

Tousa said all of these factors have contributed to lower gross sales and higher cancellation rates.

"This action is necessary to reflect the realities of today's homebuilding market," Tousa president and chief executive officer Antonio B. Mon said in the release.

"Our core operations are solid, and our market position suggests a strong future for our company. We are focused on restructuring our balance sheet and we expect business to continue as usual."

DIP terms

Citigroup Global Markets Inc. has agreed to provide the company with up to $135 million in DIP financing. Citicorp North America Inc. is the administrative assistant.

According to the DIP motion, the facility can be increased to $650 million if Citigroup can solicit lenders.

The $650 million facility would include the $135 million first-priority and priming revolving credit facility, as well as $515.43 million to be used to refinance the company's outstanding first-lien debt.

Tousa said the $135 million commitment would not be made available to the company unless the pre-bankruptcy lenders had the option to refinance the first-lien debt.

As a result, the refinancing component of the DIP gives pre-bankruptcy secured lenders the option to participate in the facility and resolves any potential priming disputes.

Tousa said the first-lien debt refinancing will save the company about $5 million in yearly interest expense.

The $650 million facility will be available if Citigroup can solicit lender participation at least two business days before the final DIP hearing.

In the meantime, Tousa would have access to $130 million of the DIP facility on an interim basis, subject to court approval.

After the roll-up, Tousa will have up to $130 million of revolving credit availability for post-bankruptcy operations, including a letter-of-credit subfacility.

Interest on the DIP facility will be either Base rate plus 425 basis points or Eurodollar rate plus 525 bps, subject to a floor of 325 bps, at Tousa's option.

The DIP facility will terminate on the earlier of 60 days after the interim order is entered if the roll-up event has not occurred and Dec. 31, 2008 if the roll-up occurs or the interim order is granted but the roll-up does not occur.

The company will pay a $1.5 million arranger fee, a 3% closing fee, a $50,000 administrative agent fee due at DIP closing and a $100,000 administrative agent fee payable on the roll-up date. Tousa will also pay an upfront fee of 1% of the roll-up commitment for each lender.

Tousa said it has roughly 2,500 homes in backlog, and the company expects to deliver all of its homes in backlog and to continue to take new orders, construct new homes and provide financial services to its customers.

The company is seeking court approval to establish procedures to pay valid lien claims and to sell homes, with liens to attach to the proceeds of the sales.

"We are committed to maintaining our operations uninterrupted, including all construction and sales activities," Mon said in the release.

Tousa said it has contracted with the administrator of its current HomeBuilder's Limited Warranty program to provide customers with current contracts of sale with a 10-year transferable supplemental warranty at no cost.

The free warranty will also apply to customers who sign a contract of sale between now and April 30, the release said.

The new program will be insured by a member company of Zurich North America.

Debt details

According to court documents, Tousa had $2.278 billion in assets and $1.768 billion in debt as of Sept. 30.

The company's largest unsecured creditors include:

• Indenture trustee Wilmington Trust Co., with a $300 million claim for the company's 9% senior notes due 2010 and a $200 million claim for the company's 8¼% senior notes due 2011;

• Indenture trustee HSBC Bank, USA, NA Corporate Trust and Loan Agency, with a $200 million claim for the company's 7½% senior subordinated notes due 2015, a $185 million claim for the company's 7½% senior subordinated notes due 2011 and a $125 million claim for the company's 10 3/8% senior subordinated notes due 2012; and

• Indenture trustee HSBC Bank, USA, NA, with a $20 million claim for the company's 13¼% senior subordinated PIK notes due 2015.

John R. Boken has been appointed as the company's chief restructuring officer.

The Chapter 11 filing includes Tousa Homes, Inc., Newmark Homes LP and entities that represent all of their brands, including Engle Homes, Newmark Homes, Fedrick, Harris Estate Homes and Trophy Homes.

Tousa's Universal Land Title, Inc., Preferred Home Mortgage Co. and Alliance Insurance and Information Services subsidiaries were not included in the bankruptcy filing.

Tousa is a Hollywood, Fla.-based homebuilder. Its Chapter 11 case number is 08-10928.

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