Realogy works to avert default on loans
Company announces debt exchange offering
By Inman News, Friday, November 14, 2008.Global real estate brokerage and franchise company Realogy Corp. cited "credit and stock market turmoil" and a worsening economic climate in offering a debt exchange to lessen the risk of default on bank loans, according to financial filings and a Bloomberg news report.
In a Thursday filing with the U.S. Securities and Exchange Commission, Realogy noted that its franchise group reported a 9 percent year-over-year decline in home-sale transaction sides in October, with sale prices tumbling 7 percent year-over-year for transactions handled by franchisees.
And Realogy's NRT subsidiary, which oversees company-owned brokerage operations, reported a rise in its home-sale cancellation rate to 20 percent in October "from its historical rate in the low- to mid-teens."
Realogy's company-owned and franchise brands include Coldwell Banker, Century 21, ERA, Sotheby's International Realty, and Better Homes and Gardens Real Estate.
The company noted that the decline in sales volume and prices for transactions will negatively impact the company's debt-to-assets ratio and "there can be no assurance that we will not violate this or other covenants under our senior secured credit facility or that this will not result in a default under our indentures."
The company also reported in the filing, "We cannot predict how long the current volatility in the financial marketplace, decline in consumer confidence and current recessionary conditions will continue to affect home sales and prices."
Bloomberg reported that Realogy "is at risk of violating the terms of its bank loans" and is "trying to reduce debt by almost $600 million and stave off default."
According to the filing, the offering could cut debt by about $592 million and lower interest expenses by about $19 million when calculated for the first three quarters of the year. The company reported $6.5 billion in total long-term debt as of Sept. 30, 2008.
Christopher Garman, CEO for debt research firm Garman Research LLC, stated in the Bloomberg article that the move to exchange bonds at a discount for new debt "is kicking the default can further down the road," and "All parties have an interest in keeping companies away from default."
In a quarterly earnings conference call earlier this month, Realogy President and CEO Richard A. Smith said, "If the company were to be in default of the (debt) covenant, our parent company ... has the right but not the obligation to cure such default through the infusion of additional equity. And of course, as you would expect, there are no guarantees."
Also, he stated that the company has not repurchased any of its debt.
The company had a net loss of $50 million in the third quarter (see Inman News), which followed a $27 million loss in the second quarter.
An affiliate of private equity firm Apollo Management LP acquired Realogy in a heavily leveraged buyout deal completed last year.
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Submitted by John Rakoci on November 14, 2008 - 7:26pm.
People said I was crazy a few weeks ago when I said they were in trouble. CB pushing the 10% sale should have made the nay sayers think. This should let them know it is true. $600 million in debt.... did they think the boom would go forever too?
Submitted by Bill Fooks on November 14, 2008 - 7:34pm.
Bill Fooks
TFT realty Marketing Service
Warwick, RI
Leveraged buyouts are a good thing on the upswing. It sure hurts when we have a slow down. Coldwell offers a lot of good things to help sellers market there homes.They also offer good items for there agents, to help the seller market there home.
Leverage will gain a stong headwind when this blows over. If they could only encourage there managers to be more aggressive we would see a big uptick in busines. They are the leaders in so many areas, thet with a little thought they can capture a whole lot of market. Look out if they try this. It will make your head spin and your wallett fat if your part of the team.
Submitted by Paul Stout on November 15, 2008 - 1:04pm.
Paul K. Stout, Realtor
Keller Williams Realty provides a better deal to seller, buyers and agents. The CB business is doomed to failure.
Submitted by Stefan Swanepoel on November 16, 2008 - 7:28am.
The real estate market is tough and will remain so for many more months to come.
Richard Smith, Chairman of Realogy was one of the first leaders of a national real estate company to announces cuts and office closings as far back as 2006. Obviously it wasn't enough as the company continues to battle the market.
May this be a lesson everyone can benefit from. Get our own business in order, remove any non critical expenses, lock down the hatches and invest in your team and maximize your technology so that you will be postioned well for when the real estate market does turn.
Good luck to everyone!
Stefan Swanepoel
Author of the annual Swanepoel TRENDS Report
Submitted by Mark Holt on December 2, 2008 - 9:22pm.
The Realogy 'reality' is Apollo racked up over 1 billion in losses starting immediately from their April '07 purchase.
Now that even its largest investor, Carl Icahn has announced today "Realogy is Currently Deeply Insolvent" in his lawsuit, http://dealbook.blogs.nytimes.com/2008/12/02/friendship-aside-icahn-sues... , it is now inevitable that these brands are now heading to bankruptcy court.
Apollo ventures, who put nearly no down payment into this deal, thanks to our mighty bankers who bought into this 6 billion folly, are concerned they've lost some reputation.
Apollo's reputation?
This is a terrible loss to each of the 300,000 professionals associated with these brands, not to mention the hard earned savings of franchisees.
The media is going to have a field day when the fillings hit. The term 'ColdwellBankrupt' is certainly not going to be burnishing any one's reputations and will only serve to further diminish, if not entirely destroy the goodwill so patiently built by the founders, franchisees and associates of these great brands.