LandAmerica Financial Group Inc. lost $599.6 million during the third quarter, laid off nearly 1,000 employees and was in danger of defaulting on its debts, the company said in a regulatory filing that sheds light on the company’s motivation for a planned merger with rival Fidelity National Financial Inc.
All five of the nation’s biggest title insurers were in the red during the third quarter, but LandAmerica’s losses were far greater than any of its competitors. The company last week postponed the scheduled release of third-quarter earnings, before announcing plans to merge with Fidelity.
LandAmerica said today the severe downturn in the housing and mortgage markets has "placed a significant strain on the company’s liquidity and capital resources to the point that it has become increasingly difficult … to remain an independent public company."
Auction rate securities held for 1031 exchange customers have become illiquid, the company said, placing demand on cash needed for operations. LandAmerica said the company was in violation of financial debt covenants of its note purchase agreement and credit agreement, and was in discussion with creditors to obtain waivers.
If not waived by lenders, the covenant violations "constitute an event of default under the agreements, giving the lenders the right to declare all principal and accrued interest payable immediately," LandAmerica said. A declaration for immediate payment under either agreement also would constitute an event of default under LandAmerica’s convertible note obligations, the company said, enabling the holders of the notes to demand immediate payment.
Most of LandAmerica’s third-quarter loss was the result of $462.4 million in non-cash write-downs of goodwill, intangible assets, investments and tax-deferred assets. The company took a $224.9 million write-down for goodwill and other intangibles reflecting the company’s depressed share price, for example.
But revenue for the quarter was down 30.3 percent from a year ago, and worsening trends in paid claims forced LandAmerica to boost loss reserves by $90 million. Claims provisions as a percentage of operating revenue for the title operations segment hit 23.5 percent, up from 9.9 percent a year ago.
Direct revenue from title and non-title commercial operations were down 40.1 percent, outpacing the company’s efforts to cut costs. LandAmerica said it closed 60 offices during the third quarter and laid off the equivalent of 940 full-time workers, reducing salary and employee benefit expenses in the title operations segment by 32 percent. Since the beginning of 2007, LandAmerica said it has shed 5,260 employees, or 37.3 percent of its workforce.
Fidelity, which plans to acquire LandAmerica in an all-stock deal, recently reported a $198 million third-quarter loss after strengthening claims reserves by $261.6 million.
LandAmerica shareholders and antitrust regulators must sign off on the merger of the two companies, and Fidelity can also back out of the deal during a due diligence review period that ends Nov. 21 (see Inman News story).
Together, Fidelity and LandAmerica might control about 45 percent of the U.S. title insurance business, based on 2007 market share. The nation’s biggest title insurer, First American Corp., captured a 30 percent market share last year. If the merger goes through, Fidelity and First American could be expected to underwrite three out of four U.S. title insurance policies.
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