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alstry (< 20)

FloridaBuilder/Alstry Race Almost Over



May 18, 2008 – Comments (11)

As our horses, FB's WCI and Alstry's SPF, approach the finish line, FB gains new confidence as he just green thumbed SPF!!!  Based on FB's history, I should just go out on the track right now and shoot my horse.

I gotta say his baby WCI has serious issues and looks like a strong contender to win.  How can anyone sell a luxury condo in Florida these days......but between you and I, it ain't much different selling a house in overbuilt CA either when the majority of the sales are foreclosures.  Just look at my previous blog.

As I look at SPF, it seems clear why its CEO jumped ship a few months ago. 

They ended the quarter with only $328 million in cash and in violation of their revolver and public debt covenants preventing them from borrowing any more moneyFurthermore, they had very few specs left to liquidate and most backlog homes scheduled for delivery in the Fall and Winter(lots of $$$ to spend and none coming in for a while-subject to cancellation).

Soon after the quarter ended, SPF spent $39 million unwinding a JV and added $45 million of additional debt.  Then they had $69 million of payables that was likely extinguished by the end of April bringing cash balance down to about $220 million(absent receipts).  Don't forget this company has a lot of debt and overhead conservatively estimating a SGA and P&I spend of approximately $50 million through May taking balance down to $170 milliion plus any spend for buildout against any receipts for closings.

Then in Mid May SPF got a reprieve from their revolver lenders and were told they could borrow an extra $70 million but only on a secured basis.  The problem is that much of that $70 million potentially went to unwinding a few more JVs last week based on what the CFO said on the CC with the carve out provision against the limitations set by the public debt holders.

Here is the big problem SPF faces, it has very limited borrowing ability and very little revenues coming in over the next four or five months.  However, it has probably well over $500 million dollars of spend requirements to build out backlog, land takedown requirements, SGA and P&I payments over the same period of time.

With probably less than $200 million in the bank as this post is written, little cash coming in, very limited borrowing ability, and its mortgage facilties cut off on May 1st, SPF facing over $500 millioin of spend ahead is seemingly rapidly approaching the end of the rope. 

The most interesting question for me right now is how low are SPF's revenues during Q2.  With only $500 million of backlog(the vast majority of which is likely scheduled for delivery after August 1st) and only 550 completed specs most of which are in lower priced markets of Carolina, Texas, and Colorado(a Max of $125MM), my estimates for Q2 revenues are between $125 million and $175 million....depending on how many specs they liquidate.  In looking at their website, it doesn't appear many were liquidated since April 1st tilting my estimates to the lower end of the range.  What is so strange is that right now current analyst estimates are for revenues is $427 million.  According to Thompson, not a single analyst has changed come out with a revision since the earnings report last week.

With probably less than $200 million in the bank, its borrowing ability cut off, its mortgage facilitiy cut off on May 1st, and facing well OVER $500 million of spend in the next few months, it seems clear that SPF is coming to the end of its rope. Now the question is whose rope is longer, Alstry's or FloridaBuilder's.



11 Comments – Post Your Own

#1) On May 18, 2008 at 2:29 PM, alstry (< 20) wrote:

Now, its not only Alstry:

Decession or Depression?

For two years, I have been writing about what I call a Decession, which is far worse than a Recession, but not as bad as a Depression.

Today I am convinced we are headed towards a Depression, and I don’t see any means to avoid it. The reason for this statement is simple. Inventory of homes is now beyond a two year supply and growing, while prices are falling off the cliff. That does not even include multi-family housing, as this market was also overbuilt. But it gets worse.

Even if builders stopped building homes today, prices would not stabilize. And, unfortunately, builders are still building. They are trying to monetize land and they have non-recourse money that is basically use it or lose it. Moreover, if the builders don’t build, the executives can’t get paid multi-million dollar packages and obscene bonuses. So they build. And they lower prices and eat away at shareholder equity. Without a doubt, at least a third of today’s builders will be bankrupt within the next 18 months. Maybe more.

Back to why I believe the coming conflagration will top anything we have ever experienced. The largest source of inventory is the homes moving through the foreclosure process and deeds in lieu of foreclosure. I estimate this will extend the national inventory to at least a 36 month supply . . . and in some markets double that. If you think I’m nuts, I’m used to it. Most people have told me I am nuts for the past four years. But I’ve been right on the mark all the way.

Over the past few weeks we have seen lenders that are giving up, when it comes to the disposition of inventory. Instead of putting policies and procedures in place, these lenders are slashing staff and outsourcing property disposition. The failure of lenders to get this under control is forcing prices down on a national level. It is not just Florida or Arizona or California. And the reason for the failure is the same reason we are in this position to begin with. There is no accountability and no regulations regarding what the lenders are doing. The snakes have moved out of the mortgage business and into the REO disposition business. These guys are taking the lenders to the cleaners.

I’ve written about one example at Fannie Mae. This week we experienced a similar horror story with GMAC. We are seeing outright fraud, but no one wants to make any attempt to stop it. The result is horrifying. Homes that should sell at $300,000 are being sold at $225,000. This lowers the bar for the rest of the inventory, because the appraisals will tag the $225,000 sale. The banks are letting the slime control how their inventory is sold. We have yet to find a single person at any of the lenders that wants to hear about the fraud or the negligence that is common place. They simply don’t care. Their only goal is to unload inventory. But without accountability, process, procedures and regulations in place, all they are doing is destroying the market.

By the way, property preservation is also outsourced to the snakes . . . and they couldn’t care less. So as this inventory sits, it costs the lenders money, but it also means mold in homes where the electric is turned off, as well as rodent and bug infestations, vandals, etc. Once again . . . no one is at the helm of the ship. Strike that. There are fat cats with big paychecks at the helm of the ship, but they are in the galley gorging themselves on food and drink, living it up at the expense of the country.

The second part of this is also lender created. As they dump inventory and allow the crooks to take advantage of them, the lenders pull back in their lending arms. And this feeds the conflagration further. When buyers can’t get financing, prices drop lower until financing either is approved or a cash buyer shows up to steal a property . . . and flip it within days.

The cycle is set, and I don’t see any attempt to slow it down or regulate it. I personally don’t see any means to avoid a depression when you have millions of homeowners losing their homes. This spreads out further, because property taxes come down as values come down. Now you have communities that are cutting police, fire, education and the basic elements that make the United States of America GREAT. Look around. Look at what people are selling at garage sales. Read the papers beyond the first page, and you’ll see stories about regular guys robbing banks and gas stations . . . because they have no other way to put food on the table.

The banks will fail. They cannot possibly continue to absorb the losses they are taking at the hands of the crooks that now control the REO markets.

Maybe I’m not making as much sense today as I normally do, but I’m in a bit of a fog. If you heard the voices of the people I deal with every week, and you saw the tears in the eyes of the kids that are crying because their Dad is crying . . . then maybe you would understand just how bad it is. If you spoke to lenders that are absolutely clueless as to what is going on, and maybe you heard the total disregard the lenders’ executives have for the problem . . . then maybe you’d have some sense of just how bad it is now . . . and what you will be reading about in 3-4 months. The lenders have lost control of the fire. It is no longer a brush fire. It is a conflagration, and the lenders are using jet fuel to try to put it out.



Several people asked about this statement "Homes that should sell at $300,000 are being sold at $225,000" . I asked Mike about it and meant to comment on it. The answer is that Morgan had clients willing to pay $300,000 for some of these homes so $300,000 is a legitimate offer. By the way, that bid of $300,000 might be a 30-50% reduction of what the house originally sold for.

What happened is these are bank owned properties and Morgan could not find anyone with any authority to take an offer. As screwy as things are there was no one with any authority to negotiate and some of these homes are just sitting until they rot with mold, and pest infestations.

That is one aspect of what is happening. The second aspect is that banks and Fannie Mae have hired what Morgan believes unscrupulous agents to represent selling their inventory of real estate owned homes. Those agents are not even bothering to list the homes. Or if they do list them, the representing agent is in a city hours away and homes do not get shown. So the homes just sit until they decay and the banks end up selling them for $225,000 instead of $300,000 they might have been able to get. Mike believes this is by design.

When air conditioning is shut off in Florida, mold will set in and homes that the bank could have sold for $300,000 end up going for way less. Morgan has stopped even attempting to make offers on properties because invariably no one is willing to make any decisions on these REOs.

Mike "Mish" Shedlock

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#2) On May 18, 2008 at 3:20 PM, AnomaLee (28.99) wrote:

I've enjoyed reading all this but I won't be giving a green thumb to SPF...


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#3) On May 18, 2008 at 8:50 PM, EScroogeJr (< 20) wrote:

"And, unfortunately, builders are still building."

And, unfortunately, bakers are still baking, farmers are still farming, cleaners are still cleaning, performers are still performning, writers are still writing...


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#4) On May 18, 2008 at 9:46 PM, bobbyj0708 (< 20) wrote:

So I went and read why FB is green thumbing them and all I can say is "Wow, what's the freakin' rush?"

Basically he's saying that SPF will survive because investors on Wall Street are gonna bankroll them. I obviously don't have his inside knowledge but wouldn't it make more sense to wait and see if this money is actually coming before upgrading them?

As I see it, we still have much in the way of price declines ahead of us in the bubblicious states, so maybe Wall Street thumbs their nose at SPF and backs someone else instead, someone who has better land holdings. And besides, I think Wall Street still has enough to worry about in terms of their own upcoming writedowns.

It may happen as he predicts, I just see the need to upgrade them right now though. 

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#5) On May 18, 2008 at 10:04 PM, bobbyj0708 (< 20) wrote:

And why is this EScrooge guy flaming you all the time? You look at his CAP log and it's awash in red ink. One could make some serious cash fading his calls. You'd think he'd maybe hold off on saying others are wrong until he actually gets something right.

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#6) On May 18, 2008 at 10:45 PM, alstry (< 20) wrote:

"Basically he's saying that SPF will survive because investors on Wall Street are gonna bankroll them. I obviously don't have his inside knowledge..."

I definitely don't have his inside knowledge.  But it is sure fun applying objective business analysis against inside Wall Street info.

Not only is SPF insolvent(assets less than liabilities), it is now approaching illiquidity(no cash and no borrowing capability).  WCI is about the same.  The strange thing is that FB sees one as a green thumb and the other as BK.

Me, I just have both thumbs up my backside.

Objectively, no rational investor would give this company a dime.  Its assets are worth less than its liabilities.  It burns cash unless it liquidates its assets at HUGE losses destroying collateral each time.  Its lenders have cut it off from further borrowing.  Its revenues are running dry.  It business outlook is horrible.  And management pays itself wonderful salaries and bonus packages for driving this company into the ground.

The patient is flat lining, but someone forgot to tell nurse as she schedules a party.

The amazing thing about this is Wall Street ANALysts have this company as a buy recommendation.  If you paid me $500 million dollars and I was forced to personally assume SPF's liabilities, I wouldn't take you up on the offer.  With that said, if this company gets a dime of financing, it will be the most creative financing effort in Wall Street history.


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#7) On May 18, 2008 at 11:03 PM, EScroogeJr (< 20) wrote:

bobby, it's not flaming. I know that alstry will win this debate. In real life that is, because getting real equity on a real house is more important than winning a few points in Caps. And he does have some valuable insights about SPF. It just gets too annoying sometimes when he posts something to the effect "what a pity that they don't force you to sleep under bridges so that my house could turn from a commodity to a collector's item" and repeats that mantra from one post to the next.

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#8) On May 19, 2008 at 3:44 AM, AnomaLee (28.99) wrote:

Not only is SPF insolvent(assets less than liabilities), it is now approaching illiquidity(no cash and no borrowing capability).

That never stopped 1-900-JACKPOT from doubling

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#9) On May 19, 2008 at 11:12 AM, anchak (99.90) wrote:

Florida is doing it in CAPS.... I thinks its perfectly okay..... And bobby are probably right about the timing.....SPF can easily go, however they seem to have something going for them - more people willing to work with you - always a good sign.

Also did somebody read that FB points to it as a 5 year LEAP Long Option - so even in real life just put only Risk Capital on the line.

I would be interesting the outcome of this bet.



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#10) On May 19, 2008 at 12:52 PM, alstry (< 20) wrote:

"SPF can easily go, however they seem to have something going for them - more people willing to work with you - always a good sign."

You and others seem to have a view that SPF is getting or ripe for a break.  From my perspective, and knowledge of what is currently going on in the industry in general, I see just the opposite happening....especially with SPF.

1st.  Their revolver lenders have tightened the collar and are requiring security for any advances going forward.

2nd.  Public debt holders have pretty much limited any further borrowing save carve outs.

3rd.  SPF's mortgage facility was completely cut off as of May 1st.

From this perspective, SPF is seeming getting squeezed from every oriface.   Not only that, they are now telling you in the 10Q that they don't expect to be in compliance by the August 14th deadline.

Unfortunately, I don't have any inside contacts at the company or Wall Street for that matter.  Maybe something is going on that the public facts can't see?

You may find the following article instructive about what is really happening in the HB industry which is consistent with Friday's HOV refinancing:


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#11) On May 19, 2008 at 4:23 PM, jesusfreakinco (28.19) wrote:


Good luck in the war versus FB.  He has some big kahuna's throwing that green thumb in your face, eh?

It'll be interesting to see which horse finishes first. 

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