Tousa Inc. has renegotiated it's loans with Citibank to relax the covenants definition of "material adverse effect", reduce lending limits and otherwise cut the company some additional slack. According to its filing: "While the amendments provide the Company with temporary relief from certain credit agreement covenants, the Company faces many challenges including, among other things, its current level of indebtedness. In connection therewith, the Company is pursuing asset sales and is considering all available restructuring and reorganization alternatives and processes including, among other things, restructuring its capital structure including attempting to exchange some or all of its outstanding indebtedness for equity in the Company. The Company has asked its bondholders to organize as a group in order to discuss such restructuring and reorganization alternatives. The Company may not be successful in achieving these alternatives and the alternatives, if achieved, may not be successful."
This is, in essence, the beginning of a pre-packaged bankruptcy; wherein the creditors and debtors pre-arrange an agreement that allows the debtor to continue operations under modified terms, and/or an orderly liquidation agreed upon by all involved. We have anticipated a bankruptcy for Tousa over the last few weeks. As I have stated several times on this blog, forced asset sales will mark bloated inventory to market quite quickly. We will get to see exactly what price the land and finished houses will sell for when they are liquidated to the highest bidder in a distressed sale. I doubt it is a number that will make any builder pleased.
For the record, here is the list of risks divulged with the filing:
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. As a result, actual results may differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
• our ability to negotiate with holders of our indebtedness;
• our significant level of debt and the impact of the restrictions imposed on us by the terms of this debt;
• our ability to borrow or otherwise finance our business in the future;
• a decline in the value of the land and home inventories we maintain;
• our ability to successfully dispose of developed properties or undeveloped land or homesites at expected prices and within anticipated time frames;
• our relationship with Technical Olympic S.A. and its control over our business activities;
• economic or other business conditions that affect the desire or ability of our customers to purchase new homes in markets in which we conduct our business, such as increases in interest rates, inflation, or unemployment rates or declines in median income growth, consumer confidence or the demand for, or the price of, housing;
• events which would impede our ability to open new communities and/or deliver homes within anticipated time frames and/or within anticipated budgets;
• our ability to successfully enter into, utilize, and recognize the anticipated benefits of, joint ventures and option contracts;
• our ability to compete in our existing and future markets;
• the impact of hurricanes, tornadoes or other natural disasters or weather conditions on our business, including the potential for shortages and increased costs of materials and qualified labor and the potential for delays in construction and obtaining government approvals;
• an increase or change in government regulations, or in the interpretation and/or enforcement of existing government regulations; and
• the impact of any or all of the above risks on the operations or financial results of our unconsolidated joint ventures.
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