Dominion warns of financial problems
It?’s possible, but unlikely, that defaults could lead to bankruptcy, builder says
Friday, August 11, 2006
Mike Pramik
THE COLUMBUS DISPATCH
Dominion Homes Inc. said this week that it?’s likely to default on terms of the financing program that helps the company remain in operation.
The Dublin home builder is working with lenders on new credit arrangements before the current ones expire in May, said William G. Cornely, Dominion?’s chief financial officer. But for the first time, in a quarterly earnings filing with the Securities and Exchange Commission, Dominion said ''it is unlikely'' that it will satisfy all of its lenders?’ requirements. If that is the case, the banks could declare a default on the loans, a move that Dominion acknowledges could prompt it to declare bankruptcy.
That?’s unlikely, however, Cornely said yesterday. He said the warning in the SEC filing, under a category titled ''risk factors,'' was simply a worst-case scenario designed to meet fair-disclosure regulations.
''It?’s not a suggestion that?’s a probability or even under consideration,'' Cornely said. ''If you are going to disclose there are risks that we can miss a covenant, it is appropriate disclosure to provide a complete discussion of what the potential ramifications of missing a covenant are.''
Dominion Homes lost $5.9 million in the second quarter, and its stock price has dropped 56 percent in a year. Top compa- ny officials, including Chief Executive Douglas G. Borror, this week said they took voluntary pay cuts and bonus reductions in response to the company?’s financial difficulties.
Dominion Homes?’ sales have declined sharply in the past year as the market for new housing in the Midwest suffers. With major markets only in Columbus, andLexington and Louisville, Ky., Dominion has felt the brunt of that decline.
The company also had been subject to an investigation by the U.S. Department of Housing and Urban Development regarding its lending practices. Last month, HUD cleared Dominion of any wrongdoing but said it would continue to investigate two banks and a mortgage company that had financed mortgages for Dominion customers.
Dominion typically finances its land acquisition, development and construction costs in large part through bank loans.
Since December 2003, the company?’s lenders, led by Huntington Bancshares, have reworked the loan arrangements four times, basically lowering the bar for the company to remain in business.
At the end of 2005, the lenders limited Dominion?’s borrowings to $300 million. The credit arrangement was amended again March 30, limiting the credit line to $240 million. It was to be reduced to $225 million on Sept. 30 and $200 million at the end of 2006.
Further, the lenders placed covenants, or requirements, on the credit line, which require Dominion to hit certain financial targets to keep the credit line active. Dominion said this week that it probably will not satisfy two specific covenants.
Dominion?’s lenders require that on Dec. 31 the company must maintain a 1.55 ratio of the value of its unbuilt-upon land related to the company?’s consolidated tangible net worth. Consolidated tangible net worth is the value of a company?’s assets minus nontangible items such as goodwill, trademarks and copyrights.
The other covenant Dominion said it?’s unlikely to meet is a minimum interest coverage ratio at the end of the third and fourth quarters. That ratio reflects the company?’s ability to meet interest payments on its debt.
Huntington spokeswoman Jeri Grier-Ball said the bank could not comment on Dominion?’s credit arrangements.
It?’s possible, but unlikely, that defaults could lead to bankruptcy, builder says
Friday, August 11, 2006
Mike Pramik
THE COLUMBUS DISPATCH
Dominion Homes Inc. said this week that it?’s likely to default on terms of the financing program that helps the company remain in operation.
The Dublin home builder is working with lenders on new credit arrangements before the current ones expire in May, said William G. Cornely, Dominion?’s chief financial officer. But for the first time, in a quarterly earnings filing with the Securities and Exchange Commission, Dominion said ''it is unlikely'' that it will satisfy all of its lenders?’ requirements. If that is the case, the banks could declare a default on the loans, a move that Dominion acknowledges could prompt it to declare bankruptcy.
That?’s unlikely, however, Cornely said yesterday. He said the warning in the SEC filing, under a category titled ''risk factors,'' was simply a worst-case scenario designed to meet fair-disclosure regulations.
''It?’s not a suggestion that?’s a probability or even under consideration,'' Cornely said. ''If you are going to disclose there are risks that we can miss a covenant, it is appropriate disclosure to provide a complete discussion of what the potential ramifications of missing a covenant are.''
Dominion Homes lost $5.9 million in the second quarter, and its stock price has dropped 56 percent in a year. Top compa- ny officials, including Chief Executive Douglas G. Borror, this week said they took voluntary pay cuts and bonus reductions in response to the company?’s financial difficulties.
Dominion Homes?’ sales have declined sharply in the past year as the market for new housing in the Midwest suffers. With major markets only in Columbus, andLexington and Louisville, Ky., Dominion has felt the brunt of that decline.
The company also had been subject to an investigation by the U.S. Department of Housing and Urban Development regarding its lending practices. Last month, HUD cleared Dominion of any wrongdoing but said it would continue to investigate two banks and a mortgage company that had financed mortgages for Dominion customers.
Dominion typically finances its land acquisition, development and construction costs in large part through bank loans.
Since December 2003, the company?’s lenders, led by Huntington Bancshares, have reworked the loan arrangements four times, basically lowering the bar for the company to remain in business.
At the end of 2005, the lenders limited Dominion?’s borrowings to $300 million. The credit arrangement was amended again March 30, limiting the credit line to $240 million. It was to be reduced to $225 million on Sept. 30 and $200 million at the end of 2006.
Further, the lenders placed covenants, or requirements, on the credit line, which require Dominion to hit certain financial targets to keep the credit line active. Dominion said this week that it probably will not satisfy two specific covenants.
Dominion?’s lenders require that on Dec. 31 the company must maintain a 1.55 ratio of the value of its unbuilt-upon land related to the company?’s consolidated tangible net worth. Consolidated tangible net worth is the value of a company?’s assets minus nontangible items such as goodwill, trademarks and copyrights.
The other covenant Dominion said it?’s unlikely to meet is a minimum interest coverage ratio at the end of the third and fourth quarters. That ratio reflects the company?’s ability to meet interest payments on its debt.
Huntington spokeswoman Jeri Grier-Ball said the bank could not comment on Dominion?’s credit arrangements.
