KB Home Cleans House

Redemption of $650 million of debt in the tough housing market aims to strengthen the balance sheet.
Stephen TaubAugust 8, 2007

Desperate times call for conservative measures — at least if you’re homebuilder KB Home.

The Los Angeles-based company said it completed its redemption of all $250 million of its 9-1/2-percent senior subordinated notes due in 2011, plus accrued interest. KB Home also repaid its unsecured $400 million term loan as well as accrued interest. The term loan was scheduled to mature on April 11, 2011.

The transactions together involved paying off $650 million of debt, largely from cash on hand, according to the Associated Press.

The company apparently is determined to revitalized its balance sheet as it tries to weather the violent storm rocking the industry. According to KB Home, the “significant free cash flow” generated from operations and the proceeds from sale of its interest in Kaufman & Broad SA have enabled it to reduce outstanding debt by more than 33 percent, or about $1.1 billion, since the end of its second fiscal quarter in 2006.

KB Home currently has more than $400 million in cash and no outstanding borrowings under its $1.5 billion revolving credit facility.

“The redemption of our 2011 notes and repayment of the term loan underscore our ongoing strategy to strengthen our balance sheet while employing a balanced approach to the use of cash to enhance the company’s ability to make investments in our business that we believe will provide future value for our investors,” said Jeffrey Mezger, KB Home president and chief executive officer.