#9 Not 1, not 2, but 3 of the top 12 homebuilders file for bankruptcy after the spring and summer of 2008 see no serious rebound in the real estate market. Bankers, finally seeing the light, stop extending life support to these homebuilders who just continue to build homes no one needs, to create cash flow. This creates a major tradeable low in the homebuilders in the fourth quarter and massive rallies on order of 50% are seen in the remaining players. While the ultimate bottom is still a year away, a great trading opportunity is created.
Standard Pacific (SPF) was one of the 3 I was targeting (and in fact the easiest to identify), but the folks over at Minyanville.com have a good view (by looking at the bond action for each company) whom the next 2 should be - another on the probable list rhymes with Teaser. So I am just incorporating their work into my framework (remember I own 2 companies very involved in 'restructurings' in the fund now). Keep in mind folks, 3-4 of these home builders are technically bankrupt already - they are only "alive" because the banks keep changing the terms of their lines of credit and covenants. These are all great short candidates as well (there is no homebuilder short ETF either) and this time I'd ride a few of these to $0. Because that's where they are heading, short of some white knight acquisition.
TheStreet.com weighs in
- Liquidity worries continue to circle homebuilder Standard Pacific (SPF). Shares were plunging 33% Friday to $1.79 after Debtwire reported that Standard Pacific hired Miller Buckfire -- a restructuring and bankruptcy specialist -- as financial adviser. The story cited unnamed sources.
- Standard Pacific, I believe, is one of the prime homebuilding candidates for a restructuring or bankruptcy this year. The builder carries some of the largest joint-venture risk of any other homebuilder, with significant exposure to the California housing market (one of the worst in the country).
- Already, Standard Pacific has been forced in recent quarters to supply capital to weak joint ventures in California. The builder is on the hook for $500 million of recourse exposure to joint venture debt, according to the company's regulatory filings.
- The company remains at the mercy of its banks, as it has already violated several debt covenants. The final piece of the puzzle is whether Standard Pacific is actually solvent -- can its assets cover its liabilities?
- We also have been seeing homebuilders finally start "giving away" homes at cost [What Happens When New Home Prices are $100K less than Existing Homes?]
- Sell land to investment banks @ 60% off for cash flow [How Overpriced is Land in the US? 60%?]
- And finally begin to curtail future building plans.
Position? Short if I could