One For FloridaBuilder
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.