HOLLYWOOD, Fla., June 29, 2007 (PRIME NEWSWIRE) -- TOUSA, Inc. (NYSE:TOA) announced today that it has entered into a settlement agreement with the senior and junior mezzanine lenders to the Transeastern JV and has now reached a global consensual resolution with all participants in the Transeastern JV including: the senior lenders, the mezzanine lenders, the JV partner and land bankers. The Company expects to close the global settlement on or about July 31, 2007, subject to closing conditions, including the funding under the Citibank facility described below. The Company can not provide any assurances that these closing conditions will occur.
The global settlement would be financed by TOUSA's issuance of new equity and debt securities including a new $500 million senior secured credit facility underwritten by Citibank.
The full amount of the debt to the Transeastern JV senior secured lenders, $400 million plus approximately $22.7 million of interest will be repaid in cash resolving all claims of the Transeastern JV senior secured lenders.
The Company entered into Settlement and Release Agreements with the Senior Mezzanine Lenders and the Junior Mezzanine Lenders to the Transeastern JV (collectively, the "Mezz Settlement Agreements") which, subject to the satisfaction of certain closing conditions, would release the Company from its potential obligations to the Transeastern JV's mezzanine lenders.
Pursuant to the Mezz Settlement Agreements, the Company has agreed to issue to the Senior Mezzanine Lenders the following securities: (i) $20,000,000 in aggregate principal amount of 14.75% Senior Subordinated PIK Election Notes due 2015 (the "Notes"), and (ii) 8% Series A Convertible Preferred PIK Preferred Stock (the "Preferred Stock"). The Company has agreed to issue to the Junior Mezzanine Lenders, warrants to purchase shares of its common stock (the "Common Stock"). The warrants will have an estimated fair value of $16.25 million at issuance (based on the Black-Scholes option pricing model and certain agreed upon inputs). Additional descriptions of the Notes, Preferred Stock and the warrants are provided below. The Company has also agreed to enter into registration rights agreements requiring the Company to register with the Securities and Exchange Commission (the "SEC") the Notes for resale (or register notes with similar terms and exchange them for the Notes) and the Preferred Stock (and Common Stock deliverable upon exercise of the warrants and conversion or redemption of the Preferred Stock). If the Company does not satisfy the registration requirements with respect to the Notes or the Preferred Stock, it will be required to pay up to an additional 1% of interest on the Notes and an additional 0.25% dividend on the Preferred Stock, payable in cash, or additional shares of Preferred Stock, with respect to the Preferred Stock, and Notes, in respect of the Notes until such time as they are registered.
-- Notes. Interest on the Notes is payable semi-annually. The Notes
will be unsecured senior subordinated obligations of the Company,
and will be guaranteed on an unsecured senior subordinated basis
by each of the Company's existing and future subsidiaries that
guarantee its 7.5% Senior Subordinated Notes due 2015 (the
"Existing Notes"). The Company is required to pay 1% of the
interest in cash and the remaining 13.75%, at its option, (i) in
cash, (ii) entirely by increasing the principal amount of the
Notes or issuing new notes, or (iii) a combination thereof. The
Notes will mature on July 1, 2015. The indenture governing the
Notes will contain the same covenants as contained in the
indenture governing the Existing Notes and will be subject, in
most cases, to any change to such covenants made to the indenture
governing the Existing Notes. The Notes are redeemable by the
Company at redemption prices greater than their principal amount.
-- Preferred Stock. The Preferred Stock will rank senior to all of
the Company's capital stock with respect to liquidation and
dividends and will have an initial aggregate liquidation
preference of $117,500,000 and will accrue dividends semi-annually
at 8% per annum as follows: (i) 1% will be payable in cash; (ii)
the remaining 7% (the "Election Dividend") will be payable, at the
Company's option, in cash, additional Preferred Stock, or a
combination thereof. The Preferred Stock is mandatorily
redeemable on July 1, 2015 in cash, Common Stock or a combination
thereof, at the Company's option. The Preferred Stock is
convertible into Common Stock at a conversion price which shall
initially equal the 20-trading day average Common Stock price
commencing 60 days immediately after the closing of the settlement
(the "Measurement Period") multiplied by 1.40. The conversion
price calculation has a per share floor of $0.25 per share (the
"Floor Price"). The number of shares of Common Stock that would
have to be issued upon conversion of the Preferred Stock is
dependent on the ultimate Conversion Price determined at the end
of the Measurement Period. The amount of authorized shares of
Common Stock in the Company's certificate of incorporation will be
increased from 97 million shares to 975 million shares of which
891 million shares reflects the maximum amount of shares of Common
Stock which may be deliverable upon conversion of the Preferred
Stock in 2015 (assuming that (i) all dividends are paid in
additional shares of Preferred Stock, (ii) the Company is required
to pay increased dividends as a result of being unable to register
the Preferred Stock and the underlying Common Stock, and (iii)
that none of the shares of Preferred Stock issued is converted
prior to 2015). There are currently approximately 60 million
shares of Common Stock outstanding. The Company is amending its
certificate of incorporation by assuming that its Common Stock
will trade at an average price of approximately $0.18 during the
Measurement Period, which when multiplied by 1.4 is equal to the
Floor Price. By way of example, if the average trading price of
the Common Stock during the Measurement Period equals the closing
price of the Company's Common Stock on the New York Stock Exchange
on June 27, 2007, which was $4.00 per share, the conversion price
of the Preferred Stock would be $5.60 which would result in a
maximum number of 36.9 million shares of Common Stock deliverable
upon conversion of the Preferred Stock (assuming that (i) all
dividends are paid in additional shares of Preferred Stock, and
(ii) that none of the shares of Preferred Stock issued is
converted prior to 2015). The conversion price of the
Preferred Stock will be adjusted for certain anti-dilution events
including below market price or below the conversion price
issuances by the Company of its Common Stock, subject to certain
exceptions. The Company cannot predict what the trading price of
its Common Stock will be during the Measurement Period or what the
impact of closing a global settlement will be on the trading price
of its Common Stock. As of March 31, 2007, the Company's Common
Stock had a book value of $11.89 per share.
-- Warrants. The warrants are exercisable for a term of five years
from the date of issuance. The warrants will have an estimated
fair value of $16.25 million at issuance provided the 20-trading
day average Common Stock price commencing 60 days immediately
after the Effective Date of the Settlement Agreement ("Calculated
Price") of TOUSA stock is between $4.25 and $6.00. The warrants
will be issued in two tranches with exercise prices based on the
Calculated Price multiplied by 1.25 or 1.50, respectively. In
connection with the warrants, the Company estimates that it will
issue no more than 11.5 million shares of Common Stock. The
exercise price of the warrants will be adjusted for certain
anti-dilution events including below market price or below the
exercise price issuances by the Company of its Common Stock,
subject to certain exceptions. Upon exercise of the Warrants
by the holders, the Company may, in its sole discretion, satisfy
its obligations under any warrant being exercised by: (i) paying
the holder the value of the Common Stock to be delivered in cash
less the exercise price; (ii) paying such amount in Common Stock
rather than cash; (iii) delivering shares of Common Stock upon
receiving the cash exercise price therefore; or (iv) any
combination of the foregoing.
"This global settlement enables TOUSA to put the Transeastern JV issue behind us and removes the uncertainty and distraction of a prolonged litigation," said Antonio B. Mon, President and Chief Executive Officer of TOUSA. "We believe the settlement is in the best interest of our stockholders, creditors and associates, and allows us to focus exclusively on our homebuilding and financial services operations."
Mr. Mon continued, "We intend to take aggressive action to reduce our debt, and while this will not happen overnight, we are prepared to take the necessary steps to strengthen the Company's capital structure and position it for the future. We appreciate the support of our banks and the confidence they have shown in our ability to manage the business and execute our asset management strategy."
As part of the settlement, the Transeastern JV will become wholly owned by the Company and merged into one of the Company's subsidiaries and become a guarantor on the Company's credit facilities and note indentures. Upon completion of the transaction, TOUSA will acquire control of approximately 7,500 additional homesites in Florida, of which 2,700 will be owned and 4,800 will be under option. The Company expects to integrate the Transeastern JV into its Florida region operations and operate it under its Engle Homes brand, one of the most recognized and respected homebuilding brands in the nation.
The Company expects that the proposed settlements will increase its loss accrual with respect to the Transeastern JV by approximately $38 million from the $354.3 million estimated in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2007, due to an increase in the expected fair value of the consideration to be paid to the creditors of the Transeastern JV. The loss accrual also remains subject to change based on the change in the estimated fair value of the Transeastern JV as of the closing of the settlement.
Joint Venture Partner
As previously announced, the Company and certain of its affiliates entered into a settlement and mutual release agreement with Falcone/Ritchie LLC and certain of its affiliates (the "Falcone Entities") concerning the Transeastern JV. One of the Falcone Entities owns 50% of the equity interests in the Transeastern JV. The agreement provides, among other things, that upon the occurrence of the effective date (as described therein), the Company would become the sole owner of the Transeastern JV and the Company would, among other things, release the Falcone Entities from claims under the asset purchase agreement pursuant to which the Company acquired its interest in the Transeastern JV. Pursuant to the Mezz Settlement Agreements, the Company and the Transeastern JV agreed to and otherwise remain obligated on certain indemnification obligations, including, without limitation, those related to certain land bank arrangements. The occurrence of the effective date is dependent upon numerous conditions including, but not limited to, the parties to the agreement reaching settlements with each tranche of lenders to the Transeastern JV and the payment by the Transeastern JV of certain amounts to take down the properties specified in the agreement.
The Company intends to file a Current Report on Form 8-K with the Securities and Exchange Commission which provides details on the global settlement and other matters available at www.sec.gov.
For a description of the Company's dispute with the Transeastern JV lenders please see the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and Quarterly Report for the quarterly period ended March 31, 2007 on Form 10-Q (the "10-Q"), each filed with the Securities and Exchange Commission and available at www.sec.gov, including the information appearing in the 10-Q under Part I, Item 2 -- "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Transeastern JV" and Part II, Item 1 -- "Legal Proceedings."
Other Matters
In connection with the Mezz Settlement Agreements, litigation with the Transeastern JV lenders is expected to be suspended until the consummation of a global settlement assuming it occurs in the next 45 days.
The Mezz Settlement Agreements do not suspend the lawsuits by stockholder plaintiffs seeking class action status in the U.S. District Court for the Southern District of Florida. The actions allege that the Company and certain of its current and former officers violated the Securities Exchange Act of 1934 by allegedly misrepresenting that the loans made to finance the acquisition of the properties of the Transeastern JV were non-recourse as to the Company. The plaintiffs also contend that disclosures concerning the Transeastern JV's actual and expected financial contributions to the Company were false and misleading. Plaintiffs claim that the defendants failed to disclose that the Transeastern JV loans were not non-recourse and that in certain circumstances the Company could be liable for the debt of the Transeastern JV. Finally, plaintiffs assert that the defendants failed to disclose that the Transeastern JV was experiencing a severe slowdown that would likely result in the loss of the Company's investment in the Transeastern JV. For more information on these claims please see the information appearing in the 10-Q under and Part II, Item 1 -- "Legal Proceedings."
The Company has been contacted by the Miami Regional Office of the SEC requesting the voluntary provision of documents and other information from the Company relating primarily to corporate and financial information and communications related to the Transeastern JV. The SEC has advised the Company that this inquiry should not be construed as an indication that any violations of law have occurred, nor should it be considered a reflection upon any person, entity, or security. The Company intends to cooperate with the inquiry.
Financing and Commitment Letter
On June 29, 2007, the Company executed a written commitment from Citigroup Global Markets Inc., together with certain of its affiliates ("Citi"), pursuant to which Citi has agreed to provide financing to establish a (i) new $200.0 million aggregate principal amount first lien term loan facility (the "First Lien Term Loan Facility") and (ii) a new $300.0 million aggregate principal amount second lien term loan facility (the "Second Lien Term Loan Facility"), (First and Second Lien Term Loan Facilities taken together, the "Facilities"). Citi or one of its affiliates will act as Sole Lead Arranger, Book Running Manager, Syndication Agent and Administrative Agent with respect to the Facilities and will manage all aspects of the syndication of the First Lien Term Loan Facility and the Second Lien Term Loan Facility in consultation with the Company.
The commitments of Citi set forth in the commitment letter terminate on July 31, 2007 if definitive documentation is not executed by such time. The proceeds from the Facilities are expected to be used to fund settlements related to the Transeastern JV.
Citi's commitments are subject to certain closing conditions, including, but not limited to, (a) satisfactory settlements with creditors to the Transeastern JV, (b) the absence of any event, condition or occurrence which results in or could result in a material adverse change in the business, prospects, performance, assets, operations, condition of the Company and its subsidiaries taken as a whole and the Transeastern JV, (c) the performance of, and satisfaction with, confirmatory due diligence with respect to liabilities and material agreements of the Company's joint ventures, (d) the absence of a material disruption or change in financial, banking or capital markets, (e) the payment of related financing fees, (f) the receipt by the lenders of a solvency opinion, in form and substance reasonably satisfactory to the Lead Arranger, confirming the solvency of the Company and its subsidiaries on a consolidated basis after giving effect to the anticipated use of proceeds, from a nationally recognized, independent financial advisory firm, (g) the accuracy of the Company's representations, and (h) the absence of governmental inquiries and investigations.
In addition, as a condition to the commitments, the Company's existing $800.0 million revolving loan facility (the "Revolving Loan Facility") will be amended and restated to (i) reduce the revolving commitments thereunder by $100.0 million and (ii) permit the incurrence of the Facilities (and make other conforming changes relating to the Facilities), and as a result the commitments are subject to the approval of the lenders in the Revolving Loan Facility.
There is no assurance that any of these closing conditions will occur, or even if they do occur, that the terms of the commitments will not change. Citi has reserved the right to assert that while the SEC Inquiry described above relates to the voluntary provision of documents, it may constitute the occurrence of an event which could cause the failure of a closing condition.
The interest rates on the Facilities and the Revolving Loan Facility are expected to be based on LIBOR plus a margin or an alternate base rate plus a margin, at the Company's option. The Company will be required to pay fees in connection with the Facilities including, but not limited to, amending the Revolving Loan Facility. The Facilities and the Revolving Loan Facility will be guaranteed by substantially all of the Company's domestic subsidiaries (the "Guarantors"). The obligations will be secured by substantially all of the assets of the Company and the Guarantors. The loans under the Facilities may be prepaid, subject to certain premiums upon repayment. The Facilities and the Revolving Loan Facility are expected to impose certain limitations on the Company, including with respect to: (i) dividends on, redemptions and repurchases of, equity interests; (ii) prepayments of junior indebtedness, redemptions and repurchases of debt; (iii) the incurrence of liens and sale-leaseback transactions; (iv) loans and investments; and (v) incurrence of debt. The Facilities and Revolving Loan Facility will also contain events of default and have financial covenants, including but not limited to the following covenants: (i) minimum adjusted consolidated tangible net worth; (ii) maximum ratio of debt adjusted consolidated tangible net worth, (iii) minimum ratio of EBITDA to interest incurred, (iv) maximum ratio of units owned to units closed, (v) maximum ratio of land to adjusted consolidated tangible net worth, (vi) maximum ratio of unsold units to units closed, (vii) maximum ratio of outstanding secured debt and letters of credit to book value of inventory. The Revolving Loan Facility will be subject to a borrowing base, which will include a reserve for amounts outstanding under the Facilities. The Second Lien Term Loan Facility will contain a limitation on amounts outstanding under the Revolving Loan Facility and the Facilities based on a percentage of inventory.
Management Changes
Effective June 26, 2007, Randy Kotler notified the Company that he will be resigning from his position as the Company's principal accounting officer effective July 8, 2007 in order to accept the Chief Financial Officer role at another company. Upon his departure, Angela Valdes will be promoted to serve as the Company's principal accounting officer and will also serve as Vice-President, Chief Accounting Officer and Corporate Controller. Ms. Valdes, a certified public accountant, has served as the Company's Corporate Controller since 2002 and prior to that had over eleven years of experience with Ernst & Young LLP.
"Randy has been a valuable member of the executive team since our inception and has been instrumental in the development of TOUSA," said Mr. Mon. "While Randy will be missed, the CFO position is a great opportunity for Randy and we know he will be successful in his new opportunity."
Mr. Mon continued, "We are very excited about Angie's promotion to Chief Accounting Officer, which is well deserved. While at TOUSA, Angie has shown outstanding leadership in managing the accounting and financial reporting functions and we are confident she will do well in her expanded role."
TOUSA, Inc. is a leading homebuilder in the United States, operating in various metropolitan markets in 10 states located in four major geographic regions: Florida, the Mid-Atlantic, Texas, and the West. TOUSA designs, builds, and markets high-quality detached single-family residences, town homes, and condominiums to a diverse group of homebuyers, such as "first-time" homebuyers, "move-up" homebuyers, homebuyers who are relocating to a new city or state, buyers of second or vacation homes, active-adult homebuyers, and homebuyers with grown children who want a smaller home ("empty-nesters"). It also provides financial services to its homebuyers and to others through its subsidiaries, Preferred Home Mortgage Company and Universal Land Title, Inc. For more information on TOUSA, please visit our website at www.tousa.com.
The TOUSA, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=1821
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, and typically include the words "anticipate", "believe", "expect", "estimate", "project", and "future." Specifically, this press release contains forward-looking statements including those which may be impacted by our ability to satisfy the closing conditions under the settlement agreements and the Citi commitment letter as well as factors outlined in our reports filed with the SEC which are available at www.sec.gov including under the "Risk Factors" sections of our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2006, filed with the SEC on March 20, 2007 and our quarterly report on Form 10-Q date filed with the Commission after such date. We do not undertake any duty to update any forward-looking statement.