Technical Olympic says Transeastern not planning to make voluntary bankruptcy filing

By Jennifer Lanning Drey

Portland, Ore., Dec. 5 - Technical Olympic USA Inc. continues to work toward solving its Transeastern homebuilding joint venture-related problems and does not foresee Transeastern filing for voluntary bankruptcy, said Randy Kotler, Technical Olympic's chief accounting officer, during a Tuesday presentation at the Bank of America 2006 Credit Conference.

"At this point, there is no plan for voluntary bankruptcy. We don't believe that makes sense," he said.

A Transeastern voluntary Chapter 11 filing would make Technical Olympic and its joint venture partner, The Falcone Group, responsible for payment of the full amount of Transeastern's outstanding loans.

Kotler also reported on Tuesday that Technical Olympic has filed a lawsuit in Broward County, Fla., in response to Transeastern agent lender Deutsche Bank's demand letter for payment of all of the joint venture's $625 million of outstanding bank debt.

Kotler said the company filed the lawsuit in an effort to keep litigation close to home and to let lenders know that the company plans to protect itself. However, he also said the company will "back off of that if it any way inhibits us from moving forward with a solution."

Technical Olympic is focused on evaluating its obligations under its completion and carve-out guarantees in relation to the joint venture with Transeastern, and Kotler reaffirmed the company's previous estimate that its potential liability could be $25 million under the completion agreement with Transeastern in which Technical Olympic agreed to pay and discharge all project costs in accordance with the credit agreements.

With regard to the carve-out guarantee between the companies and the lenders, Technical Olympic is still evaluating whether there were any misrepresentations that would create a liability to the lender.

Technical Olympic believes it is likely to find there were misrepresentations and is working to determine damages but has not yet calculated an amount on which to provide guidance, Kotler said. The company does not believe the damages will be full recourse, he added.

"We think it's going to be a manageable result. Ultimately, the objective of the restructuring and working through the guarantees is to reach a global solution with all parties involved," he said.

Improving liquidity, balance sheet

In its day-to-day operations, Kotler said Technical Olympic is highly focused on improving liquidity and its balance sheet.

Specifically, the company is working to improve its liquidity by no longer building homes that do not have sales contracts in advance, he said.

In addition, Technical Olympic continues to maintain its goal of remaining undrawn on its credit facility.

"At this point, we're focusing on maintaining our credit facilities and bringing down some of our other financing, whether it be joint ventures or land-bank arrangements," Kotler said.

The company has an additional goal of continuing to demonstrate a net-debt-to-capital ratio between 45% and 55%, he said.

As of Sept. 30, Technical Olympic had consolidated borrowings of $1.1 billion, up from $911.7 million at the end of the 2005 fiscal year on Dec. 31.

The debt included $300 million of 9% senior notes due 2010, $250 million of 8¼% senior notes due 2011, $185 million of 10 3/8% senior subordinated notes due 2012, $125 million of 7½% senior subordinated notes due 2011 and $200 million of 7½% senior subordinated notes due 2015. The company had no sums drawn under its $800 million revolver and had issued letters of credit totaling $307.8 million.

Technical Olympic is a Hollywood, Fla.-based homebuilder.

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