Toll Brothers sees demand rise, stays cautious and keeps deleveraging

By Devika Patel

Knoxville, Tenn., Feb. 22 – Toll Brothers, Inc. plans to continue reducing leverage and remain prudent despite indicators that demand for luxury housing is rebounding with a stable outlook.

“We are encouraged by what we have seen across our footprint over the past one and a half months,” chairman and chief executive officer Douglas C. Yearley Jr. said on the company’s first quarter ended Jan. 31 earnings conference call on Wednesday.

“Beginning in the first week of January, demand has picked up beyond the normal seasonality that we typically see at the start of the spring selling season and has continued into February.

“We’ve seen demand improve in most markets across the country.

“We attribute the increase in demand to improved buyer sentiment as inflation appears to be receding and the overall economic outlook seems to be more stable than it was a few months ago,” Yearley said.

Despite the heightened demand, mortgage rates are less certain and the company plans to remain prudent and keep reducing its leverage.

“While we are encouraged that buyers are returning to the market, we recognize that the direction of the overall economy, mortgage rates in the housing market remains unclear,” Yearley said.

“In light of this uncertainty, we plan to remain prudent.

“We continue to expect to generate substantial cash flow in 2023, and we have ample liquidity under our credit facilities.

“We intend to use excess cash to further reduce leverage and return capital to our shareholders,” Yearley said.

The company has been busy revamping its credit facility and term loan and intends to repay $400 million of notes at maturity in April, leaving no significant maturities until fiscal 2026.

“Last week, we extended our 22-bank, $1.905 billion revolving credit facility up five years to February of 2028,” chief financial officer Martin P. Connor said on the call.

“We also extended the maturity of $487.5 million of our $650 million term loan out to February of 2028.

“The remaining $162.5 million of our term loan will mature in part in November of 2025 and November of 2026.

“We plan to further reduce our debt by repaying $400 million of senior notes when they come due in April of 2023.

“After we repay these notes, we will have no significant maturities of our long-term debt until fiscal 2026,” Connor said.

Cash and cash equivalents were $791,609,000 as of Jan. 31, compared to $1,346,754,000 as of Oct. 31, 2022.

Loans payable were $1,145,646,000 as of Jan. 31, compared to $1,185,275,000 as of Oct. 31, 2022.

Senior notes were $1,995,439,000 as of Jan. 31, compared to $1,995,271,000 as of Oct. 31, 2022.

On Feb. 14, Toll Brothers and subsidiary First Huntingdon Finance Corp. entered a five-year $1.905 billion senior revolving credit facility with Mizuho Bank, Ltd. as administrative agent, which replaced the company’s existing agreement of the same amount.

The company may request increases in the revolving commitments up to a total of $3 billion on the facility.

The revolving agreement will terminate Feb. 14, 2028.

Amounts may be borrowed, repaid and reborrowed until the termination date.

The new revolving agreement contains substantially the same terms and conditions as the former agreement including a maximum leverage ratio and a minimum net worth test and replaces the Libor-based interest rate with SOFR-based interest rate provisions subject to adjustment.

The five-level SOFR grid with 10 basis points CSA starts at 110 bps and goes to 175 bps.

The commitment fee will be between 12.5 bps and 25 bps.

Initial pricing is at SOFR plus 110 bps with a 12.5 bps commitment fee.

Joint lead arrangers and joint bookrunners for the new agreement are Mizuho Bank Ltd., Citibank, NA, BofA Securities, Inc., Goldman Sachs Bank USA, PNC Capital Markets LLC, Truist Securities Inc. and Wells Fargo Securities LLC.

Citibank, NA, Bank of America, NA, Goldman Sachs Bank USA, Mizuho Bank, Ltd., PNC Bank, NA, Truist Bank and Wells Fargo Bank, NA are the syndication agents.

BMO Harris Bank NA, Capital One, NA and U.S. Bank NA are the documentation agents.

Also on Feb. 14, Toll Brothers and First Huntingdon Finance entered a fifth amendment to the existing $650 million senior term loan agreement dated Feb. 3, 2014 with Truist Bank as administrative agent.

The amendment extends the maturity date of $487.5 million of outstanding term loans to Feb. 14, 2028, with $60.9 million due on Nov. 1, 2026 and the remaining $101.6 million due on Nov. 1, 2025.

Principal payments are not required before Nov. 1, 2025 but can be made without a penalty.

The amendment also replaced the interest-rate benchmark with SOFR from the previous Libor subject to adjustments.

The leverage-based five-level pricing grid starts at SOFR plus 80 bps and ends at 180 bps. The initial level is SOFR plus 80 bps. There is also 10 bps CSA.

The term loan agreement contains substantially the same terms and conditions as the revolving agreement, including a maximum leverage ratio and a minimum net worth test.

Both agreements are guaranteed by the company and its wholly owned home building subsidiaries.

For the term loan, Truist Securities, Inc. is the bookrunner and is joined by Wells Fargo Bank, NA as a joint lead arranger.

Wells Fargo Bank, NA and U.S. Bank NA are the co-syndication agents.

Capital One, NA is the documentation agent.

Toll Brothers is a Fort Washington, Pa.-based homebuilder.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.