D.R. Horton Plans to Sell $400M in Convertible Senior Notes to Ease $3B Debt Load

FORT WORTH, TX—D.R. Horton Inc., which calls itself the largest homebuilder in the U.S., could be staring at voluntary bankruptcy protection before the year is out, according to industry sources in a position to know.

Their most recent evaluation of the 31-year-old, Fort Worth, TX-based company comes as the builder announces plans to offer and sell $400 million in convertible Senior Notes.

Citi of New York is handling the sale. The notes would be due in 2014.
In a prepared statement today, D.R. Horton says it plans to grant the underwriters of the notes an option to purchase up to an additional $60 million aggregate principal amount of notes solely to cover over-allotments, if any.

The company says it will use the net proceeds of the offering for general corporate purposes, including repayment or repurchase of outstanding indebtedness.

D.R. Horton in 2008 reported a net income loss of $2.633 billion. In 2007, the loss was $712.5 million. The company faces repayment of about $3 billion in loans due in 2010. About a half billion is now due but could be extended at current terms, according to previous company statements.

The new notes would be general unsecured senior obligations of D.R. Horton, Inc., guaranteed by the subsidiaries that currently guarantee the company’s outstanding public debt.

The notes would pay interest semi-annually at a fixed rate, and would be convertible at any time prior to the close of business on the second trading day preceding the maturity date.

Upon conversion, holders of the notes would receive, at the election of the company, cash, shares of D.R. Horton, Inc.’s common stock or a combination of cash and shares.

Holders of the notes would also have the right to require the company to repurchase for cash all or some of their notes “upon the occurrence of certain fundamental change events,” according to the company’s statement.

The interest rate, conversion rate and other terms of the notes are to be determined by negotiations between the company and the underwriters.

The company’s common stock was trading today at $10.88, down $1.47 from yesterday.

D.R. Horton says it delivered more than 26,000 homes in its fiscal year ended September 30, 2008. Founded in 1978 in Fort Worth, D.R. Horton has operations in 77 markets in 27 states in the East, Midwest, Southeast, South Central, Southwest and West regions of the United States.

The Company is engaged in the construction and sale of high quality homes with sales prices ranging from $90,000 to over $900,000. D.R. Horton also provides mortgage financing and title services for homebuyers through its mortgage and title subsidiaries.