Exhibit 10.1


 


FIRST
AMENDMENT TO CREDIT AGREEMENT


This
FIRST AMENDMENT TO CREDIT AGREEMENT (“Amendment”), dated as of October 17,
2007, among THE RYLAND GROUP, INC., a Maryland corporation (the “Borrower”),
the Lenders that are identified on the signature pages hereto and JPMORGAN
CHASE BANK, N.A., as Agent (the “Agent”).


RECITALS


WHEREAS,
the Borrower, the Lenders identified on the signature pages hereto, certain
other Lenders and Agent are parties to that certain Credit Agreement dated as
of January 12, 2006 (as it may be amended, renewed and restated from time to
time, the “Credit Agreement”) (all capitalized terms not defined herein shall
have the meanings given such terms in the Credit Agreement);


WHEREAS,
the Borrower and the Lenders desire to amend the Credit Agreement for the
purposes hereinafter set forth;


NOW,
THEREFORE, for good and valuable consideration, the parties hereto hereby agree
as follows:


1.             Amendment
of Article 1.


(a)         The
following defined terms in Article 1 of the Credit Agreement are hereby amended
and restated as follows:


“Consolidated
Interest Incurred” means for any period, for the Borrower and the Guarantors
(specifically excluding any Subsidiaries that are not Guarantors) on a
consolidated basis, interest expense plus interest capitalized into inventory
in such period.  To the extent that under
GAAP premiums on prepayment of Indebtedness would be included in interest
expense, such premiums shall not be included in Consolidated Interest Incurred.


“EBITDA” means,
for any period, (i) the sum of the following amounts:  (a) Consolidated Net Income for such period;
(b) cash distributions received by Borrower from the Financial Services Segment
not otherwise included in the determination of such Consolidated Net Income;
(c) income and franchise taxes deducted from revenues in determining such
Consolidated Net Income; (d) depreciation and amortization deducted from
revenues in determining such Consolidated Net Income; (e) interest expense
deducted from revenues in determining such Consolidated Net Income (including,
without duplication, previously capitalized interest expense which would be
included in “Cost of Goods Sold” and deducted from revenues in determining such
Consolidated Net Income on a combined income statement of the Borrower and the
Guarantors); (f) other non-cash charges and expenses (including but not limited
to asset impairment charges for












land inventory, investments in Joint Ventures, goodwill and option
forfeiture costs) deducted in the determination of such Consolidated Net
Income; and (g) any losses arising outside of the ordinary course of business
which have been included in the determination of such Consolidated Net Income;
less (ii) the sum of (x) any non-cash credits included in the determination of
such Consolidated Net Income, (y) any gains arising outside of the ordinary
course of business included in the determination of such Consolidated Net
Income and (z) any interest income included in the determination of such
Consolidated Net Income.


“Financial
Services Segment” means the business segment of the Borrower and its
Subsidiaries engaged in mortgage banking (including the title and escrow
business), insurance, mortgage servicing, securities issuance, bond
administration and management services and related activities, which segment
currently consists principally of the activities of Ryland Mortgage Company and
its Subsidiaries and of the Insurance Segment but excludes the Limited-Purpose
Subsidiaries.


“Leverage Ratio”
means, at any date, the ratio of (a) Consolidated Indebtedness at such date,
less unrestricted cash of the Borrower and Guarantors in excess of $25,000,000
but not to exceed $300,000,000 to (b) the sum of Consolidated Indebtedness and
Consolidated Tangible Net Worth at such date.


(b)        The
following defined terms are hereby added to Article 1 of the Credit Agreement:


“Coverage Test Failure
Quarter” is defined in Section 6.25(b).


“Insurance Segment” means
the business segment of the Borrower and its Subsidiaries engaged in the
insurance business.


“Interest Coverage Ratio”
means, as of the end of each fiscal quarter of the Borrower for the
twelve-month period ending on such date, the ratio of (a) EBITDA for the
applicable period to (b) Consolidated Interest Incurred for the applicable
period, less interest income included in revenues in determining
Consolidated Net Income for such period.


“Interest Coverage Test”
is defined in Section 6.25(b).


“Permitted Leverage Ratio”
means, at the date hereof, 57.5%, as such amount may hereafter be adjusted from
time to time as provided in Section 6.25.


2.             Reduction
of Aggregate Commitment.  Pursuant to
Section 2.5.2 of the Credit Agreement, the Aggregate Commitment is hereby
reduced from $1,133,500,000 to $750,000,000, allocated to each Lender’s
Commitment ratably.  The amounts of the
reduced Commitments of the Lenders are set forth in Schedule I hereto.


3.             Pricing.  The Pricing Schedule attached to the Credit
Agreement is hereby deleted and replaced by the Pricing Schedule attached
hereto.



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4.             Limitation
on Guarantee Obligations.  Section
6.13(a) of the Credit Agreement is hereby amended and restated in its entirety
as follows:


(a)           the Borrower and any
Guarantor may incur Guarantee Obligations, not to exceed (i) $65,000,000 in the
aggregate at any time in respect of obligations of entities in the Insurance
Segment and (ii) $35,000,000 in the aggregate at any time in respect of
obligations of entities in the Financial Services Segment (other than the
Insurance Segment).


5.             Consolidated
Tangible Net Worth.  Section 6.24 of
the Credit Agreement is hereby amended and restated in its entirety as follows:


6.24         Consolidated
Tangible Net Worth.  The Borrower
shall not permit Consolidated Tangible Net Worth at any time to be less than
the sum of (a) $1,000,000,000 plus (b) 50% of the
Consolidated Net Income (without deduction for losses sustained during any
fiscal quarter) for each fiscal quarter subsequent to the fiscal quarter ended
June 30, 2007, plus
(c) 50% of the net proceeds from any equity offerings of the Borrower from and
after June 30, 2007.  Notwithstanding the
foregoing, in the event that the Borrower shall at any time engage in an
Acquisition with a purchase price (determined under GAAP) equaling or exceeding
$100,000,000, the minimum Consolidated Tangible Net Worth requirement shall be
adjusted to the sum of (i) 80% of Consolidated Tangible Net Worth at the end of
the fiscal quarter in which the closing of such Acquisition occurs, plus (ii) an amount equal to 50% of the Consolidated Net
Income (without deduction for losses sustained in any fiscal quarter) for each
fiscal quarter subsequent to the closing of such Acquisition, plus (iii) 50% of the net proceeds
received by the Borrower for any capital stock issued after the closing of such
Acquisition.


6.             Leverage
Ratio.  Section 6.25 of the Credit
Agreement is hereby amended and restated in its entirety as follows:


6.25         Leverage Ratio.


(a)           Leverage Covenant.  As of the last day of each fiscal quarter of
the Borrower (beginning with the fiscal quarter ending September 30, 2007), the
Leverage Ratio shall be less than or equal to the then applicable Permitted
Leverage Ratio (the “Leverage Covenant”).


(b)           Interest Coverage Test.  If at any time Borrower shall fail to
maintain, for two (2) consecutive fiscal quarters, an Interest Coverage Ratio,
determined as of the last day of each fiscal quarter for the four-quarter
period ending on such day, of at least 2.0 to 1.0 (the “Interest Coverage Test”),
then the Permitted Leverage Ratio for the fiscal quarter next succeeding the
second such consecutive fiscal quarter with respect to which Borrower shall
have so failed the Interest Coverage Test (such second consecutive fiscal
quarter being herein referred to as the “Coverage Test Failure Quarter”) shall
be decreased as follows:  (i) if the Permitted
Leverage Ratio for the Coverage Test Failure Quarter was 57.5%, the Permitted
Leverage Ratio for the next succeeding fiscal quarter



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shall be decreased by 5% to 52.5%; and (ii) if the Permitted Leverage
Ratio for the Coverage Test Failure Quarter was less than 57.5%, the Permitted
Leverage Ratio for the next succeeding fiscal quarter shall be decreased by
2.5%.   (By way of example, if the
Permitted Leverage Ratio for the Coverage Test Failure Quarter was 52.5%, the
Permitted Leverage Ratio for the next succeeding fiscal quarter shall be
50.0%.)  The decreased Permitted Leverage
Ratio shall remain in effect unless and until further decreased pursuant to
this Section 6.25(b) or increased pursuant to Section 6.25(c).


(c)           Adjustment of Permitted Leverage Ratio.  If at any time at which the Permitted
Leverage Ratio is less than 57.5%, Borrower shall have satisfied the Interest
Coverage Test (which for purposes of this Section 6.25(c) shall be deemed
satisfied only if, on the same day on which Borrower satisfies the Interest
Coverage Test, Borrower is also in compliance with the Leverage Covenant), then
the Permitted Leverage Ratio, effective as of the fiscal quarter immediately
following the fiscal quarter with respect to which Borrower shall have so satisfied
the Interest Coverage Test, shall be increased as follows:  (i) upon satisfaction of the Interest
Coverage Test on a date on which the Permitted Leverage Ratio is 52.5%, the
Permitted Leverage Ratio for the next fiscal quarter shall be increased to 57.5%;
and (ii) upon satisfaction of the Interest Coverage Test on a date on which the
Permitted Leverage Ratio is less than 52.5%, the Permitted Leverage Ratio for
the next fiscal quarter shall be increased by 2.5%.   (By way of example, if the Permitted Leverage
Ratio was 47.5% prior to the satisfaction of the Interest Coverage Test, the
Permitted Leverage Ratio for the next fiscal quarter shall be 50.0%.)  The increased Permitted Leverage Ratio shall
remain in effect unless and until further increased pursuant to this Section
6.25(c) or decreased pursuant to Section 6.25(b). In no event shall the
Permitted Leverage Ratio exceed 57.5%.


(d)           Measure of Compliance.  Borrower’s satisfaction of the Interest
Coverage Test shall be measured on a quarterly basis, based on the financial
statements delivered to Agent pursuant to Section 6.1(a) or (b).  A failure to satisfy the Interest Coverage
Test alone shall not constitute a Default or Unmatured Default.


7.             Section
6.26.  Section 6.26 is hereby deleted
from the Credit Agreement.


8.             Conditions
Precedent.  This Amendment shall be
effective as of the date (“Amendment Effective Date”) upon which the following
conditions are satisfied:


(a)         The
Agent shall have received from the Borrower and the Required Lenders a counterpart
of this Amendment signed on behalf of each such party.


(b)        The
Agent shall have received from the Guarantors the Consent and Agreement
substantially in the form attached hereto as Appendix A.


(c)         The
Agent shall have received such documents and certificates as the Agent or its
counsel may reasonably request relating to the organization or formation,
existence and good standing of the Borrower, the authorization of this
Amendment and any other legal matters relating to the Borrower, the Agreement
or this Amendment, all in form and substance satisfactory to the Agent and its
counsel.



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(d)        The Agent shall have received all fees
and other amounts due and payable on or prior to the Amendment Effective Date,
including reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.


The
Agent shall notify the Borrower and the Lenders of the Amendment Effective
Date, and such notice shall be conclusive and binding.


9.             Representations
and Warranties.  The Borrower hereby
represents and warrants that as of the date hereof:


(a)           The representations and warranties of
the Borrower in the Credit Agreement are true and correct in all material
respects.


(b)           There exists no Default or Unmatured
Default.


10.           Ratification.  The Credit Agreement, as amended hereby, is
hereby ratified and remains in full force and effect.


11.           Counterparts.  This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one agreement and
any of the parties hereto may execute this Amendment by signing any such
counterpart.


12.           Choice
of Law.  This Agreement shall be
construed in accordance with the internal laws (but without regard to the
conflict of laws provisions) of the State of New York, but giving effect to
federal laws applicable to national banks.



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IN
WITNESS WHEREOF, the Borrower and the undersigned Lenders have caused this
Amendment to be duly executed as of the date first above written.


	
   

  	
  Borrower:

  
	
   

  	
   

  
	
   

  	
  THE
  RYLAND GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 



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  Lenders:

  
	
   

  	
   

  
	
   

  	
  JPMORGAN
  CHASE BANK, N.A.,

  As Lender and Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  
					



 


[Other Lender Signatures]


 



 7














PRICING
SCHEDULE


	
  

  	
  Level I

  	
  Level II

  	
  Level III

  	
  Level IV

  	
  Level V

  
	
  Rating

  	
  BBB+/Baa1

  	
  BBB/Baa2

  	
  BBB-/Baa3

  	
  BB+/Bal

  	
  BB/Ba2 or

  below or no

  Rating



  
	
  Leverage Ratio

  	
  < 30%

  	
  >
  30% < 40%

  	
  >
  40% < 50%

  	
  >
  50% < 55%

  	
  >
  55%

  
	
  Applicable Margin

  	
  0.625%

  	
  0.75%

  	
  0.875%

  	
  1.125%

  	
  1.50%

  
	
  Applicable Fee Rate

  	
  0.15%

  	
  0.175%

  	
  0.20%

  	
  0.225%

  	
  0.25%

  



 


“Rating” means the higher
of the publicly announced ratings of the Borrower’s senior unsecured public
debt by Moody’s and S&P.  If only one
of Moody’s or S&P announces a rating of the Borrower’s senior unsecured
public debt, no Rating shall be deemed to exist.


If the Level as
determined by the Rating is not the same as the Level as determined by the
Leverage Ratio, but no more than one Level apart, then the Applicable Margin
and the Applicable Fee Rate shall correspond to the Level which causes pricing
to be lower.  If the Level as determined
by the Rating is more than one Level different from the Level as determined by
the Leverage Ratio, then the Applicable Margin and the Applicable Fee Rate
shall be one Level lower (i.e., lower pricing) than the higher of such two
Levels.


Notwithstanding
the foregoing, at any time at which the Interest Coverage Ratio is less than
2.00 to 1.00, the Applicable Margin and Applicable Fee Rate determined as
provided above shall be increased based upon the Interest Coverage Ratio as
follows:


	
  Interest Coverage Ratio

  	
  Less than 2.0 to 1.0
  but

  greater than or equal to

  1.5 to 1.0



  	
  Less than 1.5 to 1.0
  but 

  greater than or equal to

  1.0 to 1.0

  	
  Less than 1.0 to
  1.0

  
	
  Increase in
  Applicable

  Margin and Applicable Fee

  Rate

  	
  0.125%

  	
  0.25%

  	
  0.375%

  



 


The Applicable Margin and
Applicable Fee Rate shall be determined in accordance with the foregoing table
based on the Borrower’s status as reflected in the then most recent Ratings and
the then most recent annual or quarterly financial statements of the Borrower
delivered pursuant to Section 6.1(a) or (b) (the “Financials”).  Adjustments, if any, to the Applicable Margin
or Applicable Fee Rate resulting from changes in the Leverage Ratio or Interest
Coverage Ratio shall be effective five Business Days after the Agent has
received the applicable Financials.  If
the Borrower fails to deliver the Financials to the Agent at the time required
pursuant to Section 6.1, then the Applicable Margin and Applicable Fee Rate
shall be the highest Applicable Margin and Applicable Fee Rate set forth in the
foregoing table until five days after such Financials are so delivered.  The Rating in effect on any date for the purposes
of this Schedule is that in effect at the close of business on such date.












In
the event that any of the Financials or any certificate delivered by Borrower
under Section 6.2(b) is shown to be inaccurate (regardless of whether this
Agreement is in effect or any Loans or Commitments are outstanding when such
inaccuracy is discovered), and such inaccuracy, if corrected, would have led to
the application of a higher Applicable Margin and Applicable Fee Rate for any
period (an “Applicable Period”) than the Applicable Margin and Applicable Fee
Rate actually applied for such Applicable Period, then (i) the Borrower shall
immediately deliver to the Agent a correct certificate under Section 6.2(b) for
such Applicable Period, (ii) the Applicable Margin and Applicable Fee Rate
shall be determined at such higher Applicable Margin and Applicable Fee Rate
for such Applicable Period, and (iii) the Borrower shall immediately pay to the
Agent (for the benefit of the Lenders) the accrued additional interest and
additional fees owing as a result of such higher Applicable Margin and
Applicable Fee Rate for such Applicable Period.


In
the event that any of the Financials or any certificate delivered by Borrower
under Section 6.2(b) is shown to be inaccurate and such inaccuracy, if
corrected, would have led to the application of a lower Applicable Margin and
Applicable Fee Rate for any Applicable Period than the Applicable Margin and
Applicable Fee Rate actually applied for such Applicable Period, and provided
such inaccuracy was not as a result of any fraudulent act, then (i) the
Borrower may, within 60 days of its discovery of such inaccuracy (but in no
event later than one (1) year after delivery of the inaccurate Financials or
certificate), deliver to the Agent a correct certificate under Section 6.2(b)
for such Applicable Period and (ii) provided this Agreement is then in effect,
Borrower may, from time to time after timely delivery of such correct
certificate, offset, against payments of interest and fees thereafter payable
under this Agreement to any Lender that received payments of interest and fees
for the Applicable Period (“Overpayments”) in excess of the fees and interest
that would have been payable to such Lender if such payment had been made based
upon the corrected Financials and certificate, amounts not to exceed in the
aggregate the Overpayments received by such Lender. No Lender shall have any
liability or obligation with respect to any Overpayment received by any other
Lender nor shall any Lender have any liability or obligation with respect to
any Overpayment received by it other than Borrower’s right of offset hereunder.



 2














SCHEDULE I


COMMITMENTS


Lender                                                                                                                    Commitment


 


 


Total                                                                                                            $750,000,000.00



 1














Appendix
A


CONSENT AND AGREEMENT OF
GUARANTORS


THIS
CONSENT AND AGREEMENT OF GUARANTORS (“Consent”) is executed and delivered as of
October 17, 2007, by the undersigned (the “Guarantors”), in favor of the “Lenders”
under that certain Credit Agreement dated January 12, 2006, among The Ryland
Group, Inc., the Lenders from time to time parties thereto and JPMorgan Chase
Bank, N.A., in its capacity as Agent. 
Such Credit Agreement, as it has been and may be amended, modified or
supplemented from time to time, is hereinafter referred to as the “Credit
Agreement.”  Unless otherwise defined
herein, capitalized terms used herein shall have the meanings ascribed to them
in the Credit Agreement.


W I T N E S S E T H:


WHEREAS,
the Guarantors have executed and delivered a Guaranty dated January 12, 2006 in
favor of the Lenders under the Credit Agreement or a Supplemental Guaranty
thereto (collectively, the “Guaranty”); and


WHEREAS,
the Borrower, the Agent and certain Lenders have entered into that certain
First Amendment to Credit Agreement of even date herewith amending the Credit
Agreement (the “Amendment”); and


WHEREAS,
it is a condition to the Amendment that the Guarantors shall have executed this
Consent;


NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Guarantors hereby consent to the Amendment
and agree that the Guaranty continues in full force and effect.


IN WITNESS WHEREOF, this Consent has been duly
executed by the Guarantors as of the day and year first set forth above.


[Guarantors]