Ryland & Shrinking Homebuilder Credit (RYL)

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You probably already figured that the increase in existing home sales was due to foreclosure, pre-foreclosure, and other distressed sales.  Today, Ryland Group Inc. (NYSE: RYL) had an interesting SEC Filing.  While many companies are trying to get access to credit, this homebuilder amended its existing revolving credit facility.  Just keep in mind that this was likely at the request of JPMorgan Chase and its other lenders.

The prior limit was $550 million, and the company has just shrunk thatdown to $200 million.  It has even taken a step to limit how much itwill be paying out to shareholders. 

This amendment also changed the definition of Ryland’s consolidatedtangible net worth and reduced the base minimum consolidated tangiblenet worth covenant default limit to $300 million, and it amended theleverage ratio restriction to a maximum of 55%.

The amendment also changed the restriction of book value of unsold landto 1.2-times its consolidated tangible net worth, changed the borrowingbase to allow for 100% use of unrestricted cash (in excess of $25.0million) less any drawn credit balances, and established a requirementto cash collateralize a pro-rata share of a defaulting lender’s letterof credit and swing line exposure.

This has a dividend limit to where the company’s common stock cashdividend is now to be limited to $10 million annually.  The maturitydate of January 2011 remains unchanged and the uncommitted accordionfeature has been reduced to $300 million.

There is plenty of landthat can now be secured at low prices since home prices have plunged.  This will help home builders when they need to buy hundreds or thousand of acres for newtransplant Trumania communities.

The SPDR S&P Homebuilders (NYSE: XHB) is trading down 1.3% at $10.82, while Ryland is down 4.4% at $16.15 on fairly light trading volume.

Jon C. Ogg
January 27, 2009