MASSIVE HomeBuilder DEFAULTS
Two massive housing developments in Las Vegas, involving several of the nation's largest home builders, have received default notices on about $765 million in debt, according to one of the partners in the projects. http://online.wsj.com/article/SB120553684871238089.html
Some HBs have over $1 Billion dollars worth of Joint Ventures. These JVs are off balance sheet and not readily observable to the casual investor. The WSJ indicates the above to JVs involve KBH and Toll. Joint venture lenders know that they have limited recourse when the projects default.
However, they are a few home builders that signed RECOURSE agreements in a number of their JV projects. A recourse loan allows a lender to go after the parent company directly in event of default. Parent companies guaranteed such loans because often they were given better terms at the time of the deal. It appears that LEN and SPF have the greatest exposure of any HB for JV recourse debt.
Here is where the tension comes to builders with recourse debt. The JV lenders want their money. They know that the land is likely not sufficient collateral for the amount. If they don't force the HB to pay off a default now, there is a good chance they may never get paid before the HB goes BK.
Expect to be hearing about Billions in JV defaults in the upcoming weeks as bankers and lenders start demanding their money back. The tension is rising between builders, consolidated lenders, and JV lenders as the honey pot gets smaller and smaller.
Some builders could be in VERY SERIOUS trouble in the upcoming weeks.
Mommy, why are those two men wearing ties ripping that builder's arms apart?