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.

Debt Overload

CreditSights analysts Frank Lee and Sarah Rowin predict Standard Pacific could be the first among major public builders to be forced to file for Chapter 11 bankruptcy protection.

"It's a matter of time. If Standard Pacific continues on this path, they won't be too far way," Lee says.

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.

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.

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.

Cash Questions

Standard Pacific's debt maturities come at a time when it has already had trouble generating cash flow.

In the first half of this year, the builder generated $322.2 million of cash flow from operations, but only $103.8 million of that came from reducing the inventories on its balance sheet. Most of the cash flow came from selling mortgage loans and collecting receivables.

Strip out some of these non-homebuilding items, and the company barely covered the $71 million of interest payments on its debt. Forget about any pay-downs of principal.

At the end of June, the company's revolving credit facility had a balance of $257 million; in late September, the balance rose to $382 million, according to recent regulatory filings.

In Standard Pacific's third-quarter report, inventors should continue to eye the firm's cash-flow-generating ability, along with any disclosures on the credit agreements and total liabilities.

"If they continue along this path, where they can't generate cash, have problems with the joint ventures and are not able to meet covenants on the bank loan, banks might say they need to restructure that debt in Chapter 11," Lee says.

"Banks want to be supportive," he says, "but they're not stupid."