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alstry (< 20)

What Does SPF's Management KNOW?



March 03, 2008 – Comments (7)

They gave themselves millions in bonuses in February after losing hundreds of millions last year and currently in violation of their loan covenants.

SPF's S-3 indicated the following:

For the year ended December 31, 2007, our earnings were insufficient to cover fixed charges; the amount of additional earnings needed to cover fixed charges for such period was $655.3 million.

At the recent Wachovia conference, Management seemingly indicated that they expected to recover all NOL carrybacks this year implying that they expected to lose hundreds of millions more this year.

SPF has until March 30th to renegotiate their revolver covenants.  Banks are getting tighter and tighter with lending.  The company lost hundreds of millions last year.  It could very well lose even more this year as conditions deteriorate.  For a company with very limited cash and hundreds of millions of spend obligations through Off Balance Sheet Joint ventures, land take down requirements secured by letters of credit, and SGA, why would a lender extend additional credit to a business that seemingly has little chance of paying the debt back?

What conversations did management have with their lenders at the end of December?  Do they already have a pretty good idea what is going to happen at the end of March?  Why would they give themselves millions in bonuses having such a poor outlook for the current year?  After all wasn't it this management that borrowed billions to speculate on land in currently some of the most challenged markets in the country?

All seemingly logical questions......anyone have an answer?

7 Comments – Post Your Own

#1) On March 03, 2008 at 7:39 PM, StockSpreadsheet (67.26) wrote:

They give themselves millions in bonuses because they can.  Same as Congress.  They can vote themselves bonuses and large pay increases so they do so.  Wouldn't you if you had the same power?  Management doesn't care about anything so trivial as company profits.  They care about their take-home pay.  They figure they can always float some more preferred stock if the company needs more money, and if the company then has to declare bankruptcy, then management will try to collect their golden parachutes and go to some other company to screw it up.  That is how America often treats its CEOs.  It often doesn't matter how badly you screwed up at your last job, somebody is always willing to hire you at a huge salary.  I remember that the board of GM once tried to give one of their retiring CEO's a $100M+ severance package.   This for an executive that under his command GM went from 40%+ market share and profits to ~25% market share and huge losses.  The shareholders balked at the payout and forced the board to lower it to something like $25M, (which was still way more than he deserved), and the board complained that the shareholders were being mean to the poor CEO and that he deserved better.  What he deserved is clawbacks and a swift kick in the pants, which is what the management of SPF deserves also.  (Along with Mozillo and a bunch of others I could name.)


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#2) On March 03, 2008 at 8:31 PM, floridabuilder2 (98.12) wrote:

there is someone that has been sniffing SPF... that is why the insiders started to buy..... and it is the reason why there is no way in he11 I will bet against that stock.....

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#3) On March 03, 2008 at 8:38 PM, alstry (< 20) wrote:


the insiders did not "buy" shares.  If you look at each respective Form 4, it was simply a net exercise and EVERY insider sold off enough shares to cover the taxes.  Bellard made the same mistake.

Why the heck would anyone pay a dime for this company and preserve the subordinated debt when the liabilities are likely over $1 Billion higher than the assets?

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#4) On March 03, 2008 at 9:07 PM, floridabuilder2 (98.12) wrote:

oh ok.... i had noticed a couple days ago the purchases, but it didn't show the dispositions at least i don't think it did....  in any event, I can't really discuss SPF beyond the x's and o's..... and even then when I deep dive builders, I look at it more macro on their financials than reading into every line item....... i don't have the time to beat up 20 10Qs....  i can make a decent enough assessment by going through about a dozen ratios and figuring out where they stand.....

SPF is on someones radar (and I know whose radar)..... as long as they are on that companies radar then they are off mine from a red thumb standpoint.........

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#5) On March 03, 2008 at 9:39 PM, alstry (< 20) wrote:

I have no doubt, parts of SPF is in play.

If you look at SPF, on balance sheet, its has about $2 billion worth of assets and $2 Billion worth of debt.  You and I both know SPF's land, most of which has not yet been impaired is worth no where close to the current book.  Based on the trading price of the swaps, the market doesn't currently believe SPF's liquidation value is sufficient to cover the outstanding senior debt, less the hundreds of millions of subordinated debt.

I doubt anyone would take over SPF if you paid them $10 per share based simply on a liqudation to debt analysis

In addition, we also both know that SPF has a lot of irrovocable obligations for land development and JV liabilities that no one wants to touch with a ten foot pole.  Hundreds and hundreds of millions in total.  You think any economic buyer would want to assume this weight.

Couple the outstanding debt and outstanding spend obligations, and one could question any reasonable investor buying this company even if you paid them $20 per share.

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#6) On March 03, 2008 at 10:07 PM, floridabuilder2 (98.12) wrote:

when spf was trading at 1.50 a share...  there was a very interested party in buying them out.... but the huge short covering basically wiped out any opportunity......  spf and hov are both the same...... you buy them with the thought that they are a call option..... 

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#7) On March 03, 2008 at 10:28 PM, alstry (< 20) wrote:

Actually, they are not even close.  Both are admittedly challenged to be charitble.  It is just that there is not a single public HB even close to SPF.  At least within a half a billion based on my analysis.

What is absolutely amazing is the shallow analysis by Wall Street.  I am sure there have been a lot of sniffers around SPF.  It has a great portfolio of land.

It is just this management team has done a job second to none digging a hole so deep that I doubt anyone would want to come close to assuming the incredible liabilities.

Whoever is looking at SPF is likely looking post BK assumptions or simply a piece now.  The problem is that SPF is constrained on its land disposition due to the negative impact on book and loan covenant restrictions.

Based on outstanding debt, limited backlog, and JV and spend obligations, SPF is in an even more challenged position than your favorite poster child WCI

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