By Dawn Wotapka Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Luxury builder Toll Bros. (TOL) finalized a four-year, $885 million bank credit facility, a sign of recovery for the battered building sector. The deal announced Monday is the first new unsecured -- meaning no collateral is required -- credit facility completed by a builder since the 2008 financial crisis, the company said. It will use the money to build homes and buy land. This transaction "is a strong vote of confidence in our future," said Martin Connor, the Horsham, Penn.-based company's chief financial officer, in a statement. Joe Snider, a senior credit officer with Moody's Investors Service, said any such deal is big news. "The banks are once again renewing their interest in the home building industry after ... almost totally eliminating their participation," he said. Credit facilities operate almost like credit cards: Builders can tap the available money when needed. But, as the market crashed, some builders had trouble complying with the covenants, or financial tests they had to meet. (Toll didn't violate any covenants.) Requirements include debt-to-capitalization ratios and tangible net worth covenants. Banks were initially forgiving, but as the housing slump continued, they began charging increasing fees and reducing the credit available to builders. Some companies, who were liquidating inventory and land and hoarding cash, decided to abandon their facilities altogether. "It was kind of a mutual thing," Snider said. "The banks wanted to be out of the industry and the home builders just didn't want to live with the increased costs that the banks were charging." That hasn't mattered as builders proceeded cautiously -- and spent little -- as the downturn dragged on. But, with more large parcels of distressed land hitting the market, builders could need other capital, in addition to their cash, to grow. This is where the large public players have an advantage over smaller private builders whose access to capital is limited. Toll's credit facility can increase to $2 billion, provided certain conditions are met. It didn't disclose those conditions. Its lenders include Citigroup (C), Deutsche Bank AG (DB) and the Royal Bank of Scotland (RBS). -By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com
