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alstry (35.42)

SPF Executives Getting Sued!!!!!!

Recs

9

February 25, 2008 – Comments (2)

From the 10K:

On August 16, 2007, Plaintiff Vinod Patel filed a Complaint in the United States District Court for the Central District of California, titled Patel v. Parnes , Case No. CV07-05364 MMM (SHx). The Complaint named Andrew Parnes, Standard Pacific’s Chief Financial Officer, as a defendant. On December 3, 2007, the Court appointed Pinellas Park Retirement System, Plumbers Local No. 98 Defined Benefit Pension Fund, and the City of Pontiac General Employees’ Retirement System as Lead Plaintiffs. On or about January 23, 2008, Lead Plaintiffs filed a Consolidated Class Action Complaint for Violations of Federal Securities Laws. The Consolidated Complaint names Andrew Parnes and Stephen Scarborough, Standard Pacific’s Chief Executive Officer, President and Chairman of the Board, as defendants.

Plaintiffs allege that the price of Standard Pacific’s common stock was artificially inflated during this period because Mr. Parnes and Mr. Scarborough provided false and misleading earnings and sales guidance to the public that lacked a reasonable basis due to the adverse impact of rising interest rates, slowing housing markets and other macro-economic factors affecting Standard Pacific. Plaintiffs assert claims against Mr. Parnes and Mr. Scarborough for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and against Mr. Parnes for violation of Section 20A of the Securities Exchange Act of 1934.

 

A class action was filed on January 23rd against the CEO and CFO and the company never notified shareholders?

 

 

Maybe the above is the basis for a little more candor in the 10K cited below:

We are currently out of compliance with the consolidated tangible net worth covenant contained in our revolving credit facility and term loans and are operating under a waiver which expires on March 31, 2008. While we are in discussions with our bank group to amend our revolving credit facility and term loan financial covenants to provide us with greater flexibility, there can be no assurance that we will be successful in obtaining such an amendment, that we will be able to maintain compliance with the covenants if amended, or that we will be able to maintain compliance with the financial covenants contained in our outstanding notes. If we are unable to comply with any one or more of these financial covenants, and are unable to obtain a waiver for the noncompliance, we could be precluded from incurring additional borrowings and our obligation to repay indebtedness outstanding under the facility, our term loans, and our outstanding note indentures could be accelerated in full. We can give no assurance that in such an event, we would have, or be able to obtain, sufficient funds to pay all debt we are required to repay.

 

 Surety Bonds . Surety bonds serve as a source of liquidity for the Company because they are used in lieu of cash deposits and letters of credit that would otherwise be required by governmental entities and other third parties to ensure our completion of the infrastructure of our projects. At December 31, 2007, we had approximately $540.9 million in surety bonds outstanding from continuing operations (exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $349.2 million remaining in cost to complete. As a result of the recent deterioration in market conditions, surety providers have become increasingly reluctant to issue new bonds and some have asked for security with respect to outstanding bonds. If we are unable to obtain required bonds in the future, or are required to provide security for existing bonds, our liquidity would be negatively impacted.....

We and our joint venture partners have also agreed to indemnify third party surety providers with respect to performance bonds issued on behalf of certain of our joint ventures. If a joint venture does not perform its obligations, the surety bond could be called. If these surety bonds are called and the joint venture fails to reimburse the surety, we and our joint venture partners would be obligated to indemnify the surety. These surety indemnity arrangements are generally joint and several obligations with our joint venture partners. At December 31, 2007, our joint ventures had approximately $79.2 million of surety bonds outstanding subject to these indemnity arrangements by us and our partners.

We anticipate being required to make additional capital contributions and/or remargin payments with respect to our joint ventures, which we currently estimate to be in the range of $45 million to $55 million based upon present asset values. We accrued the lower end of the range of this potential liability, which is included in accrued liabilities in our consolidated balance sheet as of December 31, 2007. These amounts, which are reflected in our current cash flow projections, do not reflect the impact of any further reductions in asset values which may continue until market conditions stabilize and also do not reflect additional ordinary course joint venture capital contributions, also reflected in our cash flow projections, related to acquisition, development and construction costs, loan step downs, and loan maturities.

At any point in time we are generally in the process of financing, refinancing, renegotiating or extending one or more of our joint venture loans. This action may be required, for example, in the case of an expired maturity date or a failure to comply with the loan’s covenants. There can be no assurance that we will be able to successfully finance, refinance, renegotiate or extend, on terms we deem acceptable, all of the joint venture loans that we are currently in the process of negotiating. If we were unsuccessful in these efforts, we could be required to repay one or more of these loans from corporate liquidity sources.

In addition, we accelerated the take-down of 78 lots from one Southern California joint venture for approximately $6.6 million and acquired our share of 197 unstarted lots from another Southern California joint venture for approximately $13.0 million, both in an effort to facilitate our overall tax planning strategy as well as preserve availability under certain debt covenants under our revolving credit facility.

Based on current market conditions and our financial condition, our ability to effectively access these liquidity sources is significantly limited. In addition, a weakening of our financial condition or strength, including in particular a material increase in our leverage, a decrease in our profitability, or a decrease in our interest coverage ratio, consolidated tangible net worth or borrowing base could result in a credit ratings downgrade or changes in outlook, otherwise increase our cost of borrowing, or adversely affect our ability to obtain necessary funds.

We anticipate that the financial ratios contained in these Credit Facilities will continue to be negatively impacted by deteriorating market conditions, which, over the last two years, have caused us to incur (including discontinued operations) pretax inventory, joint venture and goodwill impairments and land deposit write-offs totaling $1,463.3 million and expect that our bank group will need to provide us with additional covenant relief if we are going to avoid future noncompliance with these covenants.

We are currently in discussions with our bank group to further amend our covenant package. If we are unable to obtain the requested amendment and are unable to obtain a waiver for any covenant non-compliance, we could be prohibited from making further borrowings under the revolving credit facility and our obligation to repay indebtedness outstanding under the Credit Facilities and our public notes could be accelerated. We can give no assurance that in such an event, we would have, or be able to obtain, sufficient funds to pay all debt we are required to repay. The Credit Facilities are guaranteed by most of our wholly-owned subsidiaries other than our mortgage and title subsidiaries.

And some people think WCI is facing more significant hurdles than SPF?  Amazing!!!!!!!!!!!!!

2 Comments – Post Your Own

#1) On February 25, 2008 at 7:55 PM, cabuilderboy (88.80) wrote:

And yet SPF gained 7.7% today. The market seems to have built a floor for the homebuilders no matter what the news. Don't know if you can fight the sentiment, until actual market information doesn't support it anymore. I am surprised as well, but guys with much bigger $$ seem to think otherwise.  

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#2) On February 25, 2008 at 8:41 PM, alstry (35.42) wrote:

My guess is that these guys could be in serious trouble.

The failed to notify shareholders that the CEO and CFO are being sued for providing false and misleading guidance while giving the CFO a $1.6 million dollar cash bonus and the company faces the above financial constraints.

You have board members making open market stock purchases just before issuing very dilutive convertible offerings and making subsequent purchases prior to negative news announcements.

Not a word of the earlier suit against the CFO was identified in any 10Qs.

It appears the management of this company thinks notifying shareholders of the receipt of a previously mentioned tax return is more material than their CEO and CFO being sued for providing false and misleading guidance.

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