Technical Olympic USA's five-year credit default swaps widened and its bonds dropped after the homebuilder said it has been negatively impacted by poor conditions in the Florida housing market. The CDS widened 185 basis points to 465. Its 7 1/2% '11 bonds fell three points to 81 1/2, while its 7 1/2% '15 bonds fell to 79 1/4 from 81 3/4.
The homebuilder's problems stem from its joint venture, Transeastern Homes. The venture was formed between the company and Arthur Falcone, ceo of the Falcone Group and the majority owner of Transeastern. The venture has been hit by a slowdown in the Florida housing market where its business is concentrated. The downturn in Florida mirrors the housing slowdown in the rest of the country.
Technical Olympic said revised sales and delivery projections at the venture are not adequate to support its capital structure. The company is requesting waivers from its lenders regarding potential defaults and permitting future advances under its revolving credit facility. A dealer said the company's revolver was quoted at 85-90, but there had been little trading of the Deutsche Bank-led debt.
Moody's Investors Service placed all Technical Olympic ratings on review for downgrade. It said the joint venture's problems highlight the risks of regional concentration and a debt heavy capital structure at Transeastern. While Technical Olympic is more diversified than its joint venture, it too has a large exposure in Florida, the ratings agency noted. Technical Olympic has a Ba3 corporate credit rating. Randy Kotler, interim cfo, did not return calls.