Mercedes Homes - Liquidity through Use of Lenders’ Cash Collateral
Two days after Mercedes Homes filed for bankruptcy, the home builder obtained interim court authorization to use lenders’ cash collateral. Like almost all cash collateral orders, this authorization was supposed to end on March 2, 2009. With March 2 behind us, Mercedes Homes had requested an extension of the use of cash collateral through April 16, 2009 and the lenders (saddled with more than $151 million of Mercedes Homes’ distressed debt) had consented.
A major reason why lenders might have consented might be that Mercedes Homes did close a healthy number of home sales in the past couple of months - see the homes closing notice filed by Mercedes Homes. We have a post on this today - What Sale Prices are Bankrupt Builders Offering? Mercedes Homes Recent Sales. Furthermore, Mercedes Homes claims that it has at least $2.7 million of “unencumbered cash”, i.e., free cash which is not encumbered by any lien or security interest in favor of first lien lenders.
With the bankrupt builder continuing to obtain liquidity through home sales and the use of cash collateral, we stand by our earlier Crash Predictor model results in Mercedes Homes to honor warranties that there is a reasonable probability of Mercedes Homes undergoing reorganization. It might not be accompanied with the most favorable results for unsecured creditors and home owners, but it is likely that this bankrupt builder might be able to confirm a reorganization plan with its lenders.
PS. We do not have any links or affiliations with the Mercedes Homes corporate group or any of its shareholders.
