Standard Pacific ( SPF) might be worth more dead than alive. That's why some are predicting the homebuilder's lenders will eventually force the company to file for bankruptcy to restructure its hefty debt load. The stock, one of the most heavily shorted of the homebuilders, has seen wild gyrations lately. It has jumped about 15% in the past five days, but it's still down about 80% for the year to around $5 -- giving it the dubious distinction of being one of the worst performers in a heavily battered sector. Standard Pacific's bonds, meanwhile, are trading at distressed levels. The company reports its third-quarter results Thursday, with analysts expecting a loss of $1.54 a share, according to Thomson Financial. While homebuilders of all types are facing mounting losses, Standard Pacific's issues may be the worst of any among the major public building companies. It has heavy exposure to the dismal California housing market, a hefty debt load and hidden dangers lying in its joint ventures.
The company, which couldn't be reached for comment on this story, has more than $2 billion of debt and a market cap of $315 million. While the overall level of debt is troubling, the maturity schedule could break the builder's back. Standard Pacific is one of only two homebuilders that have debt maturities coming due in each of the next four years, according to CreditSights. The other is Centex ( CTX). Standard Pacific has recently run up against financial ratio covenants on its credit facility, which is its lifeblood. This year, the company has already gone back to its bank twice to amend indentures that cover its banking agreements. The more land impairments the builder reports, the more shareholder's equity gets reduced on the balance sheet. This results in Standard Pacific coming up against maximum debt-to-tangible-net-worth requirements in covenants. The company's contingent liabilities in its joint ventures also trouble CreditSights. As homebuilding sales slow in the joint ventures, Standard Pacific has been forced under the agreements to inject more cash into the partnerships. "The JV's continue to bleed, and they have to support them," Lee says. Last quarter, Standard Pacific paid $25 million to two of its Southern California joint ventures to help fund a margin call from a lender. The company also spent $81.6 million to pay off the debt in conjunction with buying out its partner's interest in a Northern California joint venture.
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.
Of course, assuming a builder can sell homes fast enough in a horribly slumping market is a big assumption. More and more homebuilders are offering aggressive price cuts to clear homes, and this is causing buyers who bought in previous months to cancel contracts. This makes Lee, the CreditSights analyst, skeptical that Standard Pacific can create enough cash flow to service the debt. Many homebuilders claim they have moved units in these inventory-clearing sales, yet their cancellation rates are reaching 50% to 60%, Lee says. "They're not exactly converting these sales contracts into cash at end of day," he adds.