Summary
D.R. Horton, Inc. (DHI) has filed an 8-K report detailing a material amendment to its unsecured revolving credit agreement, effective January 4, 2008. This Fourth Amendment significantly alters the terms of the company's credit facility, primarily by lowering financial covenants and reducing the overall facility size. These changes are likely a response to the prevailing economic conditions and may impact the company's financial flexibility and borrowing costs.
Key Highlights
- 1D.R. Horton entered into a Fourth Amendment to its unsecured Revolving Credit Agreement on January 4, 2008.
- 2The amendment reduces the required tangible net worth minimum to $3.5 billion plus 50% of annual net profits (or losses) and equity increases from certain transactions.
- 3The maximum Leverage Ratio has been decreased from 60% to 55%.
- 4The credit facility size has been reduced from $2.5 billion to $2.25 billion, with an accordion feature allowing it to increase to $2.65 billion.
- 5The interest coverage ratio covenant has been removed as a direct event of default, but lower ratios will trigger increased pricing on loans and letters of credit.
- 6Specific conditions apply if the Interest Coverage Ratio falls below 2.0 to 1 or 1.5 to 1 for two consecutive quarters, requiring higher Adjusted Cash Flow From Operations to Interest Incurred or a minimum combined liquidity.
- 7The amendment also modifies definitions for EBITDA and Interest Incurred, and expands eligible asset categories for Loan Funding Availability.
Frequently Asked Questions
The Fourth Amendment primarily lowers the company's financial covenants, including a reduced tangible net worth requirement and a lower maximum leverage ratio. It also decreases the overall size of the revolving credit facility.
While the interest coverage ratio covenant is no longer a direct event of default, if the Interest Coverage Ratio falls below certain thresholds (2.0 to 1 or 1.5 to 1), the pricing for loans and letters of credit will increase. This means borrowing could become more expensive under specific performance scenarios.
Yes, the facility size has been reduced from $2.5 billion to $2.25 billion. However, there is an 'accordion feature' that allows the facility size to be increased up to $2.65 billion under certain conditions.
The company must now maintain a tangible net worth of at least $3.5 billion plus 50% of annual net profits (or losses) and 50% of specified equity increases. The maximum Leverage Ratio is now capped at 55%.