WCI Communities Files for Chapter 11

WCI Communities (WCI Quote) filed for Chapter 11 bankruptcy protection Monday, a move that sent shares of the homebuilder diving more than 50%.

In tandem with the filing, the Bonita Springs, Fla., developer announced the immediate departure of its CEO, Jerry Starkey, who had held the position since 2005. The board has appointed its COO, David Fry, to serve as interim president and CEO, as the company looks for a permanent replacement.

Board chairman Carl Icahn says WCI attempted to avoid a bankruptcy filing. "However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the company's entire $1.8 billion of debt may soon be in default. This was confirmed when certain holders of the company's $125 million convertible notes informed the company that they rejected its exchange offer and instead insisted on being paid in cash in full on August 5, 2008," Icahn said.

WCI has reached an agreement with its principal secured lenders on terms that ill give it access to more than $50 million of cash to continue operating its business on an interim basis. The company also received a proposal for an additional $100 million through a debtor in possession (DIP) loan facility.

"While WCI remains cash-flow positive and our asset base is strong, our ongoing operations have been adversely impacted by the continuing downturn in the real estate sector and the overall economy," said interim-CEO Fry. "Like other large homebuilders across the country, WCI continues to experience declines both in pricing and the sale of new homes and condominiums, as well as dramatic increases in cancellation rates.