RAIT's Ties Extend to Troubled Homebuilders

Updated from 1:19 p.m. EDT

RAIT Financial Trust's(RAS Quote) exposure to the plummeting real estate market is not only tied to the foundering American Home Mortgage(AHM Quote), but it also includes investments in hybrid debt securities issued by two homebuilders facing liquidity worries -- Beazer Homes (BZH Quote) and WCI Communities(WCI Quote).

RAIT shares plunged 36% Tuesday after it disclosed that it has invested in trust preferred securities issued by American Home, which could file for bankruptcy. RAIT's shares were down another $1.49, or 14%, to $8.87 in recent trading.

Trust preferred securities are essentially a hybrid of debt and preferred stock. RAIT buys the paper and in turn places it into collateralized debt obligations.

RAIT's exposure to American Home stems from its 2006 acquisition of Taberna Realty Finance Trust. A search of Securities and Exchange Commission filings by TheStreet.com shows that Taberna participated in deals in which trust preferred securities were issued by Beazer and WCI.

In June 2006, Beazer issued $100 million of trust preferred securities. Taberna participated in the deal, but it is not clear from SEC filings how much Taberna purchased.

In September 2005, WCI issued $100 million of trust preferred securities. Taberna purchased $25 million of these securities, Bear Stearns(BSC Quote) purchased $25 million and JPMorgan(JPM Quote) bought $50 million, SEC filings show.

Representatives from RAIT, which reports earnings after the market closes Wednesday, didn't immediately return a call seeking comment.