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alstry (< 20)

If HOV subprime, what is SPF?



May 16, 2008 – Comments (2)

If HOV is forced to raise capital at 11 1/2% immediately following a $150 million dollar equity offering and its rating is Baa, how will SPF raise money with the downgrade tonight by S&P to CCC.

HOV has twice the backlog as SPF and is in compliance with its debt covenants.  It has not been cut off from its mortgage facility and has much less JV exposure.  Further, it has less debt than SPF and better geographical diversification.

With homebuilding margins at current levels, how can any builder reasonably sustain paying 11 1/2%. 

By keeping America's public builders overleveraged, it forces them to build to keep cash coming in, even if it is negative cashflow.  This is just what America needs with the current oversupply of housing and default notices increasing dramatically.

And we cheer this behavior on.................?


2 Comments – Post Your Own

#1) On May 16, 2008 at 10:10 PM, AnomaLee (28.53) wrote:

With homebuilding margins at current levels, how can any builder reasonably sustain paying 11 1/2%.

That's easy you can do one of two things:

1) Issue more debt to pay your existing debt

2) Use financial fairy dust, and sprinkle it over your balance sheet...

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#2) On May 17, 2008 at 9:56 AM, bellard (97.53) wrote:

I have been analyzing the past HB Q's, and doing my early summer DD on the US economy. I currently have no dogs in the HB race. I closed my SPF short position at 2.8(from 5).

I track HOV, SPF, BZH, LEN, and KBH. My view is that the US economy needs to have some diversified HB's go BK over the next 6 months. My picks would be SPF, HOV, LEN, and BZH.

The problem as I see it, is that all these firms thought they would be safe in a big downturn because they own soo much developed land/lots that they couldsell these and raise cash and pay off debt if needed....big mistake.

Since they can't sell raw, or lots at any price, they are being economically forced to keep building at a loss just to get some of their cash back out of the land. What the US HB economy needs is no new homes for 9-12 months. These two opposing economic forces will come to a head this year IMHO.

My previous forcast was that many of these weak HB could survive 2008, but 2009 could see BK. Now I see BK in 2008 a real possibility.

BTW - any SPF recapitalization below 2 a share is the same as BK in my book.

Good post!


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