May 24, 2012
Tousa Roller Coaster
The bankruptcy case of TOUSA, Inc. and its various subsidiaries (collectively
“Tousa”) is one where lenders have seen their fortunes rise and fall. On
March 15, 2012, they fell again when the Eleventh Circuit1(the “Circuit
Court”) reversed the District Court’s opinion and reinstated the Bankruptcy
Court’s order, which had disgorged over $400 million from Tousa’s senior
lenders and avoided certain guarantees and liens granted to them by the
Conveying Subsidiaries (defined below). Specifically, the Circuit Court found:
(i) the Tousa Bankruptcy Court did not err when it found the Conveying
Subsidiaries did not receive reasonably equivalent value in exchange for the
new liens provided to the New Lenders; and (ii) the Transeastern Lenders were
the direct beneficiaries of the new liens and as such subject to the avoidance
powers of section 550(a).
Tousa Facts Reviewed
Tousa and the Conveying Subsidiaries were an integrated and consolidated enterprise that designed, built and
marketed homes. Tousa was initially financed by bonds and a revolving credit facility (the “Revolver”). In June
2005, TOUSA Homes LP (“Homes”) and Falcone Ritchie joined forces to acquire certain homebuilding assets
owned by Transeastern Properties, Inc., a leading real estate developer in Florida (the “Joint Venture”). A
syndicate of lenders financed the Joint Venture (the “Transeastern Lenders”) with $450 million under three
agreements: (i) a senior credit agreement; (ii) a senior mezzanine credit agreement; and (iii) a junior mezzanine
debt (the “Transeastern Loans”). As part of their collateral package, the Transeastern Lenders required carve-out
and completion guarantees (the “Guarantees”). Certain subsidiaries were not initially a party to the Transeastern
Loans (the “Conveying Subsidiaries”).
The downturn in the real estate market caused Tousa to default on the Transeastern Loans. The Transeastern
Lenders demanded repayment of the Transeastern Loans under the Guarantees and the revolving lenders
required Tousa and its subsidiaries to increase their obligations under the Revolver before they would continue
to lend. In an effort to hold off the revolving lenders and the Transeastern Lenders and to get cash to Tousa
from the Revolver, the Conveying Subsidiaries agreed to pledge their assets as security under the Revolver and
provide additional guarantees listing themselves as subsidiary borrowers.
The agent for the Transeastern Lenders filed an action against Tousa and Homes for damages and breaches of
the Guarantees (the “Transeastern Litigation”). Tousa faced three options: (i) litigate; (ii) file for bankruptcy; or
(iii) settle. Tousa decided to settle. A syndicate of lenders (the “New Lenders”) provided Tousa with a first and
1The Circuit Court comprises Florida, Georgia, and Alabama.
RESTRUCTURING ALERT
Contact a Team Member
Orrick's Restructuring Group is
available to assist clients in
addressing questions regarding this
alert. For further information,
contact:
Raniero D'Aversa
Partner
New York
Jonathan Guy
Partner
Washington, D.C.
Amy G. Pasacreta
Senior Associate
New York
MAY 24, 2012
