Standard Pacific Sinking in Debt

In its last amendment to its bank agreement, Standard Pacific was forced by its banks to provide more information on joint ventures by its next Securities and Exchange Commissino filing, says Lee.

The Optimistic Case

While Standard Pacific clearly is facing negative headwinds, some have argued that the company can survive.

In a research note last week, JPMorgan analyst Michael Rehaut said "the company is in a solid position to pay down its revolver and stave off a negative liquidity event."

As he sees it, buying the stock comes down to a binary decision on Standard Pacific's viability as a going concern. Rehaut rates the stock overweight because he believes the company can make it.

However, Rehaut's thesis rests on a risky assumption: that Standard Pacific can manage to work down its housing inventories and sell homes fast enough to pay down debt. Standard Pacific had $382 million outstanding on its revolving credit facility in late September, along with $150 of long-term debt coming due in each of 2008 and 2009. Another $350 million of debt comes due in 2010 to 2011.

The company had about $1 billion of homes under construction at the end of the second quarter. Rehaut says that even if you assume a 20% haircut to that backlog value, it provides more than adequate coverage for the debt coming due by the end of 2009.