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alstry (< 20)

One For FloridaBuilder



May 06, 2008 – Comments (9)

FloridaBuilder and I have a bet on which homebuilder will declare bankruptcy first.  My choice is SPF...which was green thumbed by FB when I made my choice and his is WCI.

WCI reports its earnings tomorrow.  SPF next week.  I have to say, after a very quick review of WCI's most recent 10K....this girl is going to have a hard time finding a date to the prom.  The following is an excerpt:

At December 31, 2007, the report of Ernst & Young, our Independent Registered Public Accounting Firm, accompanying our audited financial statements included a “going concern” paragraph. Due to the “going concern” paragraph, we were not able to comply with the requirement to submit annual consolidated financial statements accompanied by a report and opinion that was not subject to a “going concern”, like qualification or exception under the Revolving Credit Facility, Term Loan and Tower Loan. The Company requested and obtained, on March 17, 2008, a waiver of this requirement from the lenders. In addition to the waivers, the Tower Loan was amended March 17, 2008 to provide for consistencies with the governing provisions of, as well as cross collateralization on a subordinate basis with the Term Loan and Revolving Credit Facility. The amendment also limits the Tower Loan to one further advance, which is to be funded on March 31, 2008.

Holders of our $125.0 million, 4.0% Contingent Convertible Senior Subordinated Notes due 2023 (Convertible Notes) have an option of requiring us to repurchase the Convertible Notes at a price of 100 percent of the principal amount on August 5, 2008. Pursuant to certain amendments in our Senior Unsecured Revolving Credit Agreement dated as of June 13, 2006, as amended (Revolving Credit Facility) and Senior Term Loan Agreement dated as of December 23, 2005, as amended (Term Loan) in January 2008, we will need to have sufficient liquidity after giving effect to, on a pro forma basis, the repurchase of the Convertible Notes. We do not anticipate having sufficient liquidity to satisfy bank covenant liquidity tests. In that event, we will be required to seek an amendment or waiver under the Revolving Credit Facility and Term Loan or from the Convertible Note holders or issue new securities in exchange for the Convertible Notes, or find another way to satisfy our obligations to repurchase the Convertible Notes. If we are unable to obtain an amendment or waiver, issue exchange securities, or otherwise satisfy our obligations to repurchase the Convertible Notes, the Convertible Note holders would have the right to exercise remedies specified in the Indenture, including accelerating the maturity of the Convertible Notes, which would result in the acceleration of substantially all of our other outstanding indebtedness. In such a situation, there can be no assurance that we would be able to obtain alternative financing. In addition, if the Company is determined to be in default on the Convertible Notes, it may be prohibited from drawing additional funds under the Revolving Credit Facility and the Tower Loan Agreement, which could impair our ability to maintain sufficient working capital. Either situation would have a material adverse effect on the solvency of the Company.


From my perspective, both situations are likey potentially force WCI into bankruptcy.  What is interesting is what can mangement say tomorrow in light of the comments in the most recent legal filing.  There has been very little public commentary on WCI's going concern warning from its auditors. 

Having recently returned from a Florida trip, I can confirm that selling a condo right now in Florida is very very challenging.  Expecially in light of the recent tightening of credit standards.

I am not sure how WCI can make it through the summer.  FB sure picked a good horse to bet against me.  At issue for tomorrow is how many of its customers have defaulted on its orders through the end of April.  Tomorrow's CC could be a turning point for homebuilders depending on how WCI presents.

It seems like FloridaBuilder has the edge coming into the home stretch on our bet.....but I can't tell you how many exactas I have won by a nose at the finish line.

9 Comments – Post Your Own

#1) On May 06, 2008 at 5:14 PM, klemenv (97.13) wrote:

I was amazed, how CEO openly admited, that WCI don't have funds to repay convertible notes during last revenue conference call, and nobody reacted... 

On the other hand, SPF dropped 15% in last few days, while virtually all other builders rallied. Looks like there is some development. 

What about new challenge, who can predict, when BZH will report earnings?

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#2) On May 06, 2008 at 5:16 PM, alstry (< 20) wrote:

BZH reported tonight that it will report its report by May 15th according to the report it filed with the SEC.

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#3) On May 06, 2008 at 5:29 PM, alstry (< 20) wrote:


May 6 (Bloomberg) -- Countrywide Financial Corp. has suspended the home equity credit lines of almost all its Las Vegas customers, including the $60,000 Christopher Whipple says he needed to expand his cell-phone accessories business.

``I hope this doesn't break me,'' the 35-year-old retailer said. His credit score was 790 out of a possible 850, putting him in the top 40 percent of borrowers. ``It's going to hurt more than I thought.''

Since January, Countrywide, Bank of America Corp., Washington Mutual Inc. and IndyMac Bancorp Inc. have frozen about 600,000 equity credit lines nationwide, said Michael Kratzer, president of a Bankrate Inc.-owned Web site that's fielding consumer complaints. The lenders are targeting borrowers in cities where property values are falling, including Las Vegas, Chicago and Los Angeles, he said.

Frozen credit and real estate declines are putting a chill on spending and hurting the economy. In February, taxable sales in Clark County, Nevada, which includes Las Vegas, fell 3.1 percent from a year earlier, dropping 13 percent at furniture stores and 6 percent for durable-goods wholesalers. In the same month, as it became harder to borrow money across the U.S., consumer spending rose at the slowest pace in more than a year.

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#4) On May 06, 2008 at 5:32 PM, StKitt (28.40) wrote:

Good luck with your SPF horse! I've got red thumbs on both SPF and WCI (and the other usual suspects), so it's looking like a turkey shoot for the next year or so.

On a related note, I heard a report on NPR this morning that CFC is STILL coaching people through "liar" loan applications... "Oh, your husband's title includes the word 'Manager.' Just bump up his income a little and the underwriters probably won't check on it." Apparently no lessons learned...

So buy those Florida condos now! Unbelievable.


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#5) On May 06, 2008 at 5:42 PM, cubguy1 (< 20) wrote:

Alstry - it's not really a fair bet since WCI is more CRE with condos. They've got a very concentrated exposure to florida and as you've alluded to, the condo market in florida is getting hammered. SPF is more locationally diversified but still very bubbly (CA, NV, AZ, FL as well as a few other states).

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#6) On May 06, 2008 at 5:47 PM, cubguy1 (< 20) wrote:

Alstry - it's not really a fair bet since WCI is more CRE with condos. They've got a very concentrated exposure to florida and as you've alluded to, the condo market in florida is getting hammered. SPF is more locationally diversified but still very bubbly (CA, NV, AZ, FL as well as a few other states).

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#7) On May 06, 2008 at 5:58 PM, alstry (< 20) wrote:

I figure giving FloridaBuilder a 20 length lead in a seven furlong race levels the playing field.

I try to be fair with my bets.  But I can't wait to see how WCI wiggles out of tomorrow's earnings report.

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#8) On May 06, 2008 at 6:12 PM, anchak (99.90) wrote:

Alstry..Did you take a position in WCI...... This seems to be a desterted trade on the negative side - nobody wants to assume the long risk

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#9) On May 06, 2008 at 6:25 PM, alstry (< 20) wrote:

What do you think?

When someone has access to someone as "connected" as the great FloridaBuilder, and that person doesn't take advantage of such insightful knowledge provided without any strings attached, except a friendly bet against someone not worthy, the unworthy would be a Fool not to take advantage of such information.

You think Alstry is a Fool?

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