WCI Dodges Heat With Writedown Strategy

With the heat on from its creditors, troubled Florida condo developer WCI Communities (WCI Quote) is scrambling to look as healthy as possible.

While the company can't hide its weak cash flows, it may be employing unusual accounting assumptions to delay large land impairment charges that would reduce book value further.

WCI's shares have plunged 75% in 2007, as the company recorded $119 million in losses for the first nine months of the year. Not even an equity investment and a board shake-up by billionaire Carl Icahn could help the stock.

At around $4 per share, WCI trades at just 20% of book value, reflecting investors' liquidity concerns and skepticism over the value of the company's assets. It has a market capitalization of about $191 million.

Last week, Moody's cut WCI's credit rating to junk, citing the builder's weaker-than-expected cash flow generation and continued violations of bank covenants in its third quarter.

Most of WCI's single-family homes and condos are located in Florida, where the housing market went from red-hot to over-cooked in recent years, sending housing prices and land prices plummeting.

As prices drop in Florida and other formerly hot markets, homebuilders have been forced to record billions of dollars in inventory impairment charges to reflect the deteriorating value of housing communities and land investments.