Toll Brothers, a builder of luxury homes based in Horsham, Pa., recently issued $300 million of debt to refinance higher-rate notes and pay down a $222.5 million fixed-rate term loan. The company sold the 5.15% senior notes due 2015 in a private placement with Citigroup the sole book runner.
Joseph Sicree, chief accounting officer, said the company has been working to finance its senior subordinated notes with lower-cost debt. Of the proceeds from the offering, $100 million will be used to retire all of its 8% senior subordinated notes due 2009. The rest will be used to retire a $222.5 million bank loan--currently at 7.18%--due next month.
Bank One led the five-year term loan back in 2000. "We wanted to lock in five-year fixed-rate debt at advantageous prices," said Frederick Cooper, senior v.p. of finance at Toll Brothers. He also explained that at the time it was a good opportunity for the banks in its credit line that were looking to invest in five-year debt in addition to their revolver investments.
Sicree said the company has no plans for more debt or equity offerings this year, adding that its $1.2 billion credit facility should take care of any financing needs. Toll Brothers put the five-year credit line in place last July increasing the capacity from $575 million with a syndicate of 23 banks (LMW, 7/23). "Management foresaw the need to increase the size of the facility to support the 20% average growth rate the company has attained since going public in 1996," explained Cooper last year. JPMorgan is the lead bank and sole bookrunner.
Major changes have occurred with Toll Brothers over the past few years. When the term loan was put in place Toll Brothers was a high-yield company and in 1999 revenue was just $1.4 billion. Now the company is investment grade and expects revenue to be north of $5 billion.
A slew of other homebuilders have also tapped the bank loan markets for increased credit lines including Technical Olympic USA, M.D.C. Holdings and WCI Communities.