In a regulatory filing Thursday, real estate franchise and brokerage company Realogy Corp. said it expects to post a third-quarter net loss of $20 million to $25 million on $1.14 billion to $1.17 billion in revenue, and also reported efforts to stay within contractual debt ratios before a Sept. 30 deadline. 

Realogy, whose franchise group includes the CENTURY 21, Coldwell Banker and ERA brands, was acquired by an affiliate of private equity firm Apollo Management LP in April 2007, in a highly leveraged deal that left the company with considerable debt.

Realogy reports it will take out up to $325 million in second-lien term loans to pay down its obligations to senior creditors, in order to help the company remain within contractual debt ratios that are scheduled to tighten at the end of the month.

In its most recent quarterly report to regulators, Realogy listed short- and long-term debts totaling $7.31 billion, down from $7.46 billion at the end of last year. About half of that debt — including a $3.1 billion term loan facility and a $750 million revolving credit facility that’s not fully drawn — was part of a senior secured credit facility that’s subject to a credit agreement.

Last month, in reporting a $15 million second-quarter loss on $1.02 billion in revenue, Realogy said the 5.1-to-1 debt ratio on its $3.4 billion in senior secured debt at the end of June was within the maximum 5.35-to-1 ratio stipulated in the credit agreement.

But the credit agreement calls for the ratio to step down to 5-to-1 on Sept. 30, and then to 4.75-to-1 on March 31, 2011. Realogy has until the end of this month to reduce its senior secured debt, call on Apollo Management for assistance, or seek a waiver from creditors.

A breach of the credit agreement would be considered an "event of default," the company has warned in regulatory filings. If Realogy were unable to obtain a waiver from creditors, those creditors could demand immediate payment of all outstanding debts — jeopardizing the company’s continued operation. …CONTINUED

Apollo Management, however, has committed to helping Realogy maintain its required debt ratio and cash flow through Dec. 31, Realogy said in February in reporting a $1.9 billion loss for 2008 (see story).

Realogy says that commitment from Apollo, together with the prospect that it will be able to repay some of its senior secured debt by taking out new second-lien term loans, means the company expects to remain in compliance with the new 5-to-1 debt ratio taking effect Sept. 30 on its senior secured debt.

In the debt restructuring announced Thursday, Apollo Management could end up increasing its ownership of another form of Realogy debt: bond notes. The plan calls for Realogy to take out up to $325 million in second-lien term loans to refinance part of its senior secured debt.

If that transaction goes as planned, Realogy reports that bondholder Icahn Partners LP has agreed to exchange 70 percent of $311 million in bonds it holds for $150 million in second-lien term loans, Realogy said. Icahn Partners has also agreed to sell the remainder of those bonds to Apollo Management LP, Realogy said.

Realogy was forced to abandoned a debt exchange plan last year after Carl Icahn filed a lawsuit to block it (see story).

In another regulatory filing today, Realogy said that if the current plan succeeds, Apollo’s ownership of Realogy bonds will increase to $970 million, up from $875 million today.

Realogy also disclosed today that it has ended discussions with Apollo Management and other institutional holders of Realogy bond notes regarding an exchange of bonds for equity in the company and new debt. In breaking down the company’s debt in its last quarterly report, Realogy reported $3.16 billion in outstanding bond notes as of June 30.


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