WCI Communities - condos, Florida-centric

Someone (Raymond James) has finally come out and said it: WCI is twirling in a death spiral. The company has no hope of profits till well beyond 2009, may have to mark down deferred tax assets, has debt of $1.7B (83.3% of net capitalization), and continues to suffer higher than normal levels of cancellations. WCI has $110M in cash, as of March.

Further:

...lenders are completing appraisals of assets secured under the borrowing base, and management (WCI) acknowledged many of those new property values are likely to come back below current book value," Puryear said.

The difference in values would reduce borrowing base availability further and could trigger mandatory prepayments, he added in a note to clients.

A poster on our forums threw in an interesting little tidbit:

What is not mentioned here is $125 million in convertible debt that has a put date of 8/5/08. They acknowledge that they do not have the money to address this. While they are making an attempt to renegotiate this debt, all of this together is kind of the proverbial snowball rolling down the hill.

That does indeed seem like the last sort of problem they need.

WCI was ranked #40 on BuilderOnline's Top 100 for 2006. A provocative excerpt from that article follows:

There's just no getting around the fact that 2006 was a horrendous year for WCI Communities. With the bulk of its business concentrated in the extremely soft Florida market, the Bonita Springs, Fla.–based builder reported a 95 percent drop in profits over the previous year. Cancellations and defaults resulted in negative net sales in the fourth quarter.

“When America wakes up from this slump and this fear of buying homes, I think we'll see Florida return to one of the top home building markets in the country, as it has been historically,” CEO Jerry Starkey told industry analysts in its fourth-quarter earnings call.

Starkey never stopped waiting for "America to wake up" from its irrational fear (also known as realizing that home prices are insanely inflated and disconnected from fundamentals).

Carl Icahn was kind enough to make a near-$1B, $22/share bid for WCI in early 2007. WCI rejected it—perhaps miffed by the fact that the offer called for the ouster of geniuses like Starkey and a good chunk of the board. In fact, to show their contempt, WCI adopted a poison pill limiting the voting power of large shareholders (Icahn was accumulating a stake of the company at market prices).

This defense successfully caused the stock to fall to the $7 range within a few months.

By August, WCI relented, and red-faced, let Icahn (who had assembled a near 15% stake) put three directors on its board, and disabled the poison pill.

None of this ended up solving the company's problems, which were apparently of a more fundamental nature having to do with... the market (and WCI's exposure to it).

Incidentally, both Bill Gates and Martin Schwartz also had sizeable stakes in WCI.

In a near-Shakespearan tragedy, with the stock now around $2, all of the above (billionaires and WCI itself) are looking (and probably feeling) rather foolish.

Also slaughtered: countless investors who thought throwing money into homebuilders monkey-see-monkey-do after Gates and Icahn was a great idea.

Call this one an "imminent implode".