Technical Olympic closes on Transeastern settlement using $500 million Citigroup funding

By Caroline Salls

Pittsburgh, Aug. 1 - Technical Olympic USA, Inc. has closed on its $500 million credit facility underwritten by Citigroup Global Markets Inc. and used the funds to close its Transeastern joint venture global consensual settlement, according to a company news release.

"With the completion of our financing and the global settlement, we can put the Transeastern JV issues behind us," Technical Olympic president and chief executive officer Antonio B. Mon said in the release.

"Having eliminated the cost, management distraction, and potential adverse outcome of protracted lender litigation, we can now focus all of our efforts on operating in this difficult housing market.

"Much hard work remains for us to execute our plan to de-leverage our balance sheet and actively manage our assets during one of the most challenging housing markets in many years," Mon added.

As previously reported, the global settlement, which will end all litigation associated with the Transeastern joint venture lenders, was financed by Technical Olympic's issuance of new equity and debt securities, including a $500 million senior secured credit facility, made up of a new $200 million first-lien term loan and a new $300 million second-lien term loan.

The term loans were used toward the joint venture settlement to fund a $335 million repayment of the Transeastern senior term debt, a $65 million repayment of the Transeastern revolving credit facility debt, to purchase some Transeastern land bank assets for $51 million, to pay $36 million of interest, financing fees and expenses and to apply $13 million as cash on the company's balance sheet.

The company also issued $20 million of 14¾% senior subordinated pay-in-kind election notes and 8% series A convertible preferred PIK preferred stock with an initial liquidation preference of $117.5 million to Transeastern's senior mezzanine lenders.

The preferred stock is convertible into common stock at a conversion price initially equal to the average closing common stock price for a 20-trading day period beginning Oct. 1, multiplied by 1.40.

Additionally Technical Olympic issued warrants to Transeastern's junior mezzanine lenders to purchase shares of its common stock, and the warrants have an estimated fair value of $16.25 million at issuance.

Revolver amendments

The company said its existing $800 million revolving loan facility has been amended to reduce the revolving commitments by $100 million and allow for the new term loans.

The revolver also establishes new financial performance covenants, including establishment of minimum tangible net worth requirements, maximum total leverage ratios, minimum interest coverage ratios, total land-to-adjusted-tangible-net worth ratios, maximum unsold-units-to-units closed ratios and maximum land supply ratios.

Technical Olympic's certificate of incorporation has also been amended to increase the authorized number of common shares to 975 million shares from 97 million shares.

Of the new total shares authorized, 891 million reflects the maximum amount of shares that will be issued upon conversion of the preferred stock in 2015, but the company said it expects to issue significantly less than 975 million shares.

As previously reported, the Transeastern joint venture has been merged into one of Technical Olympic's subsidiaries and has become a guarantor on the company's credit facilities and note indentures.

Technical Olympic said it plans to release its quarterly earnings after the close of the market on Aug. 8.

Technical Olympic is a Hollywood, Fla., designer, builder and marketer of single-family residences, town homes and condominiums.

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