The stock market pimps on CNBC were speechless when Roubini laid out the facts. They really should follow this blog so they can see what is now inevitable, at least a year ahead.
My 1st question is where was the SEC on Icahn's bullshit offer in late '06?
I made a killing on these in early '07 but they have been able to prolong the pain this long...second question is more of a statement...Icahn is soooooo stupid for not unloading prior to this. Says more about the ability to find a buyer than anything else.
Let's see WCI- default
YH00- most likely a $150 m loss
TW- more loss
BBI- common share purchase down over 80% (he does have the preferred div payment but that doesn't come close to offsetting the original purchase at north of $10
"Day-to-day operations will continue as usual, while we work with our stakeholders to restructure the balance sheet, Mr. Fry said.
This from a company that is cash-flow positive and has a strong asset base?
In a just world the judge denies the petition for reorganization AND refers the case for criminal proceedings regarding false accounting.
However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the companys entire $1.8 billion of debt may soon be in default.
Ahhhh, the meat of the issue. They want to "walk away." This isn't a bankruptcy, this is a repudiation of contractural obligations. I hope the judge is cognizant of the moral hazards here. If he lets WCI get away with this all the HBs will need to follow suit to remain competitive. Bigger picture this has as much potential to sink a lot of banks and the judge should be cautious in spreading the pain to a weakened financial sector. If anyone thinks there is a credit crunch now wait until money market funds (where lots of the rolling commercial paper resides) start breaking the buck. IMO that event would send half their deposits overseas, half to the safety of insured savings and half to mattresses/glod/bullets. (I know that's 3 halves but think about it).
Does anyone have any info on how bad the Miami condo market is faring?
The inventory of new units coming on line through 2010 was frightening. I had read that more new units were under construction than there were existing units.
If anyone thinks there is a credit crunch now wait until money market funds (where lots of the rolling commercial paper resides) start breaking the buck.
Money funds would already be breaking the buck absent the Fed's new lending facilities and regulatory forebearance such as FASB 157. Also, firms such as Legg Mason have had to dump hundreds of millions of $ into their money funds to avoid breaking the buck.
Financial shenangans have brought to the brink of ruin.
It was instructive to read the comments from 12/17- it is really funny that RYL has been shrinking the line of credit rapidly as their equity vanishes.
All the homebuilders are doing is going catatonic while they continue to move cheaper and cheaper product.
Nemo, I suspect you can't really have a contrary indicator until the viewpoint put forth has become common, accepted wisdom.
A lot of mainstream are still in denial. They trot out guys like Roubini as a sort of carnival freak show, someone to laugh and chortle at, like those morons who thought Mt. St. Helens might be a little bit dangerous, or the folks that thought a 1300-foot luxury liner with no lifeboats might be a bad idea.
No contrary indicators until the "freaks" become the norm.
Nemo wins the great Race for the bottom 2008! Congratulations, I've left your dawg prize on the doorstep in a paper bag and lit it on fire so you can't miss it.
Question; is this the damn bursting or will the HBs just trickle in to the BK Courts?
Had these guys short almost top-tick over two years ago. Textbook double-top. Rode 'em from 35 and change down to 20, covered.
Went back to the well around 21 back in Feb 2007. Icahn stopped me out with that offer. Totally my bad...
Knowing what I know now about the company, his offer was an absurd pump-job: one of WCI's covenants was that in the event of a takeover, the debt would all be immediately callable at 105% of par. They were running 300% debt to equity even then, so it would've wiped them out.
Moral of the story - know the covenants of the companies you are long or short.
If they're really cash flow positive, then whoever ends up with their assets will continue building houses. This has gruesome implications for anybody who needs house prices to stay up - like the FDIC.
I'm suspicious about the cash flow positive claim, though. In deep inland CA you're starting so see houses well below replacement costs.
Main company may be cash flow positive but I bet all those 130 subsidiaries are not cash flow positive. With all of those entities, it is amazing that they take the whole company bankrupt instead of selected subsidiaries. This points to a failure of the company as a whole and the backruptcy will allow WCI to shaft it's creditors for a short time. In the long run, WCI will most likely go under anyway due to the house market and eventual lack of financing.
Chatted with two cute Wamu analysts at a downtown Seattle bar the other night. With a worried look on my face, I asked how things were going for them.
Cutie 1: "We're doing fine. Had some problems a few weeks ago, but worked through it.[Looks at friend] Right?"
C2: "Yeah, fine. [Looks at friend] Right?"
C1: "Right. I think."
Cutie 1 has plans to audition for the Bachlorette, though. She'll be fine, I'm sure.
Some details on WCI from its latest 10-Q filed on July 29th (Quotes below). I wonder why they didn't wait until the results of the exchange offer were in tonight. I also wonder who's left holding the bag, clearly Icahn and the other stockholders lose here, but who currently holds the debt?
"Holders of our $125.0 million 4.0% Contingent Convertible Senior Subordinated Notes due 2023 (Convertible Notes) have an option of requiring us to repurchase the Convertible Notes at a price of 100 percent of the principal amount on August 5, 2008. Pursuant to certain amendments in our Senior Revolving Credit Agreement dated as of June 13, 2006, as amended (Revolving Credit Facility) in January 2008 and Senior Term Loan Agreement dated as of December 23, 2005, as amended (Term Loan) in January 2008, we will need to have sufficient liquidity and must not exceed a certain amount of total debt after giving effect to, on a pro forma basis, the repurchase of the Convertible Notes. We do not anticipate having sufficient liquidity to satisfy these requirements as of August 5, 2008."
"In July 2008, the Company announced an exchange offer (Exchange Offer) for all of the Convertible Notes. Pursuant to the offer, we offered to exchange a unit, consisting of $1,000 principal amount of new 17.5% senior secured notes due 2012 (the New Notes) and a warrant to purchase 33.7392 shares of WCI common stock, for each $1,000 principal amount of the Convertible Notes. The Exchange Offer will expire at 12:00 midnight EDT on August 4, 2008, unless extended or terminated by us. The consummation of the Exchange Offer is subject to certain customary conditions, including a 90% minimum tender condition, which means that at least 90% of the aggregate principal amount outstanding of the notes must have been validly tendered and not withdrawn. The Exchange Offer is also conditioned on the amendment and restatement of the Companys existing credit facilities and issuance of new second lien notes. No assurances can be given that the Company will be successful in entering into an amendment and restatement of the Companys existing credit facilities or issuing new second lien notes, in each case on satisfactory terms or at all. Subject to applicable law, the Company may, in its sole discretion, waive any condition applicable to the Exchange Offer or extend or terminate or otherwise amend the exchange offer. If we are unable to satisfy the obligations with respect to the Convertible Notes, we may be forced to file for bankruptcy."
While WCI remains cash-flow positive and our asset base is strong... Other than that, how was the play, Mrs Lincoln? When you're in the business of borrowing, building, and selling, the idea that that cashflow ex-borrowing expenses means anything is pretty silly.
I have a warm place in my heart for WCI and Ichan. He allowed me to establish a decent short position at $22, and I closed out (too early) at $4. The Yahoo message board for WCI was one of the best in terms of cogent analysis.
"Breaking the buck" refers to the real way money market accounts work. Sure you expect a variable rate of return based on market conditions but in truth that can also means variable NEGATIVE returns. To remain liquid MMF loan their deposits to the likes of Countrywide and WCI and list these as commercial paper. Commercial paper used to mean things like loaning Macy's for them to buy Christmas inventory or a machine shop to expand to make a new big order. Today it also means working capital for home builders. Fine when things are good. Things aren't good and it is unlikely the the MMF managers can afford to backfill to hold returns to just 0%.
My condolences on your misplaced admiration of my worldview.
AllenM aka Joliet Jake writes: Or we could rename Ben the Kangaroo- now debt collapse is beginning to chase him like Yellow Dog Dingo...through the Flinders, the cinders....
Always hungry.
Just So.
Nice Kipling reference. Our most telling financial system metaphors are cartoons and fairy tales. Humpf.
Knew it!
And their primary lenders are?
Smells like Victory!!!
Someday this war's gonna end...
Waiting for it too. Ichan BS'd everyone til the end. He mislead investors IMO... Default on debt? Here come the lawsuits...
announced today that it and approximately 130 of its wholly-owned subsidiaries
That is going to generate a ton of paperwork, and attorneys fees.
"...cash flow positive excluding their debt payments"
I love it.
I'm surprised they lasted as long as they did. That $24 offer without ANY DD
looks really good now!!
Couldn't happen to a nicer bunch a idiots.
Ciao
MS
Roubini on CNBC
Runnning Summary
Roubini says that we are a quarter of the way through...
"Financial system will be wiped out"
"We are in the recession"
"2 Trillion dollar write down(!)"
"Recognize losses by end of next year"
Here come the writeups! (in 2010)
"Consumer will continue to slow..."
Hundreds of bank failures, FDIC has used 50+% of its balance sheet already...cost to government will be at least a trillion dollars.
The best quote
"without all that debt payment we'd be cash-flow positive"
Sort of like "without all those losses we'd have had a profit"
Starkey is such an ass....
SAC and Icahn took big baths on this unless they found someone to off-load all those bonds to.
Ciao
MS
SAC and Icahn took big baths on this unless they found someone to off-load all those bonds to.
You're right, the word default has been thrown around...
Roubini basically paints the way for the dow to drop to under 10,000 in the next few months. U heard it here First!!!!
JPM will be leading the restructuring.
Hey, does this mean I won the pool?
Woo Hoo!
A real estate bust is much worse than an equity bust. The leverage and illiquidity long painful slog.
Bottom calling here is a joke.
Q: How did Icahn, SAC and so many others become knife catchers?
A: OPM.
Surely Roubini on CNBC is SOME sort of contrary indicator...
The stock market pimps on CNBC were speechless when Roubini laid out the facts. They really should follow this blog so they can see what is now inevitable, at least a year ahead.
My 1st question is where was the SEC on Icahn's bullshit offer in late '06?
I made a killing on these in early '07 but they have been able to prolong the pain this long...second question is more of a statement...Icahn is soooooo stupid for not unloading prior to this. Says more about the ability to find a buyer than anything else.
Let's see WCI- default
YH00- most likely a $150 m loss
TW- more loss
BBI- common share purchase down over 80% (he does have the preferred div payment but that doesn't come close to offsetting the original purchase at north of $10
Not such a smart boy is he?
Ciao
MS
Nemo writes:
Surely Roubini on CNBC is SOME sort of contrary indicator..
Good call... Except they gave him about two minutes...Cramer will really have to pump today. you know Call the bottom agai
"Day-to-day operations will continue as usual, while we work with our stakeholders to restructure the balance sheet, Mr. Fry said.
This from a company that is cash-flow positive and has a strong asset base?
In a just world the judge denies the petition for reorganization AND refers the case for criminal proceedings regarding false accounting.
However, the filing became necessary because of the recent failed effort to obtain financing and the recognition that the companys entire $1.8 billion of debt may soon be in default.
Ahhhh, the meat of the issue. They want to "walk away." This isn't a bankruptcy, this is a repudiation of contractural obligations. I hope the judge is cognizant of the moral hazards here. If he lets WCI get away with this all the HBs will need to follow suit to remain competitive. Bigger picture this has as much potential to sink a lot of banks and the judge should be cautious in spreading the pain to a weakened financial sector. If anyone thinks there is a credit crunch now wait until money market funds (where lots of the rolling commercial paper resides) start breaking the buck. IMO that event would send half their deposits overseas, half to the safety of insured savings and half to mattresses/glod/bullets. (I know that's 3 halves but think about it).
Does anyone have any info on how bad the Miami condo market is faring?
The inventory of new units coming on line through 2010 was frightening. I had read that more new units were under construction than there were existing units.
If anyone thinks there is a credit crunch now wait until money market funds (where lots of the rolling commercial paper resides) start breaking the buck.
Money funds would already be breaking the buck absent the Fed's new lending facilities and regulatory forebearance such as FASB 157. Also, firms such as Legg Mason have had to dump hundreds of millions of $ into their money funds to avoid breaking the buck.
Financial shenangans have brought to the brink of ruin.
They want to "walk away." This isn't a bankruptcy, this is a repudiation of contractural obligations.
What? No. It's a bankruptcy.
Congrats, Nemo!
It was instructive to read the comments from 12/17- it is really funny that RYL has been shrinking the line of credit rapidly as their equity vanishes.
All the homebuilders are doing is going catatonic while they continue to move cheaper and cheaper product.
Still dead men walking, err crawling.
Someday this war's gonna end...
Nemo, I suspect you can't really have a contrary indicator until the viewpoint put forth has become common, accepted wisdom.
A lot of mainstream are still in denial. They trot out guys like Roubini as a sort of carnival freak show, someone to laugh and chortle at, like those morons who thought Mt. St. Helens might be a little bit dangerous, or the folks that thought a 1300-foot luxury liner with no lifeboats might be a bad idea.
No contrary indicators until the "freaks" become the norm.
Oh, and congrats on the pool!
Nemo wins the great Race for the bottom 2008! Congratulations, I've left your dawg prize on the doorstep in a paper bag and lit it on fire so you can't miss it.
Question; is this the damn bursting or will the HBs just trickle in to the BK Courts?
Dawg,
You know those fat cat developers always have to be dragged kicking and screaming to their doom.
After all, they still get paid until the judge fires 'em.
Oh wait, now they negotiate critical player pay.
There are still 7 thousand hedge funds to fund knifecatching and short killing.
After all, Gentle Ben just might cut rates to provide a soft landing.
The Fed is going to practice some shock and awe since Congress is stuck until January. They have to.
Or we could rename Ben the Kangaroo- now debt collapse is beginning to chase him like Yellow Dog Dingo...through the Flinders, the cinders....
Always hungry.
Feed him more paper.
Someday this war's gonna end...
wow! this was one of my first puts purchase ever, along with CFC. Icahn showing up was a turn off, but yet again, Icahn got it wrong... like yahoo.
http://bp0.blogger.com/_wFWqWIH-WFU/SJbeOOfovCI/AAAAAAAAFT4/jDGzS41EOkw/s1600-h/BORROW_Max_630_378.png
i absolutely love the "cash flow positive" comment, without paying the debt back of course. kind of like argentina.
congrats to Nemo and Julia.
fortunately for you, Julia, you won't be paid in a flaming bag of dogpoop.
Highlight of my day? I just got my son's sleepover buddy to wake up.
Rob, I'll take the flaming bag, please.
Inegro Montoya:
I am a long time lurker and very much a financial novice but looking at that chart made my blood run cold.
Nice one I. Montoya!
The whole Icahn thing ticks me off....
Had these guys short almost top-tick over two years ago. Textbook double-top. Rode 'em from 35 and change down to 20, covered.
Went back to the well around 21 back in Feb 2007. Icahn stopped me out with that offer. Totally my bad...
Knowing what I know now about the company, his offer was an absurd pump-job: one of WCI's covenants was that in the event of a takeover, the debt would all be immediately callable at 105% of par. They were running 300% debt to equity even then, so it would've wiped them out.
Moral of the story - know the covenants of the companies you are long or short.
If they're really cash flow positive, then whoever ends up with their assets will continue building houses. This has gruesome implications for anybody who needs house prices to stay up - like the FDIC.
I'm suspicious about the cash flow positive claim, though. In deep inland CA you're starting so see houses well below replacement costs.
Zack-
The tell of that story was that Icahn (in his filed offer) stated that he had not done ANY DD.
Don't know about you but covenants or not that was a bigger issue and reason to stay in it.
Ciao
MS
Main company may be cash flow positive but I bet all those 130 subsidiaries are not cash flow positive. With all of those entities, it is amazing that they take the whole company bankrupt instead of selected subsidiaries. This points to a failure of the company as a whole and the backruptcy will allow WCI to shaft it's creditors for a short time. In the long run, WCI will most likely go under anyway due to the house market and eventual lack of financing.
Chatted with two cute Wamu analysts at a downtown Seattle bar the other night. With a worried look on my face, I asked how things were going for them.
Cutie 1: "We're doing fine. Had some problems a few weeks ago, but worked through it.[Looks at friend] Right?"
C2: "Yeah, fine. [Looks at friend] Right?"
C1: "Right. I think."
Cutie 1 has plans to audition for the Bachlorette, though. She'll be fine, I'm sure.
Some details on WCI from its latest 10-Q filed on July 29th (Quotes below). I wonder why they didn't wait until the results of the exchange offer were in tonight. I also wonder who's left holding the bag, clearly Icahn and the other stockholders lose here, but who currently holds the debt?
Maybe they'll hire Michael as a motivational speaker for their exit interviews
"Holders of our $125.0 million 4.0% Contingent Convertible Senior Subordinated Notes due 2023 (Convertible Notes) have an option of requiring us to repurchase the Convertible Notes at a price of 100 percent of the principal amount on August 5, 2008. Pursuant to certain amendments in our Senior Revolving Credit Agreement dated as of June 13, 2006, as amended (Revolving Credit Facility) in January 2008 and Senior Term Loan Agreement dated as of December 23, 2005, as amended (Term Loan) in January 2008, we will need to have sufficient liquidity and must not exceed a certain amount of total debt after giving effect to, on a pro forma basis, the repurchase of the Convertible Notes. We do not anticipate having sufficient liquidity to satisfy these requirements as of August 5, 2008."
"In July 2008, the Company announced an exchange offer (Exchange Offer) for all of the Convertible Notes. Pursuant to the offer, we offered to exchange a unit, consisting of $1,000 principal amount of new 17.5% senior secured notes due 2012 (the New Notes) and a warrant to purchase 33.7392 shares of WCI common stock, for each $1,000 principal amount of the Convertible Notes. The Exchange Offer will expire at 12:00 midnight EDT on August 4, 2008, unless extended or terminated by us. The consummation of the Exchange Offer is subject to certain customary conditions, including a 90% minimum tender condition, which means that at least 90% of the aggregate principal amount outstanding of the notes must have been validly tendered and not withdrawn. The Exchange Offer is also conditioned on the amendment and restatement of the Companys existing credit facilities and issuance of new second lien notes. No assurances can be given that the Company will be successful in entering into an amendment and restatement of the Companys existing credit facilities or issuing new second lien notes, in each case on satisfactory terms or at all. Subject to applicable law, the Company may, in its sole discretion, waive any condition applicable to the Exchange Offer or extend or terminate or otherwise amend the exchange offer. If we are unable to satisfy the obligations with respect to the Convertible Notes, we may be forced to file for bankruptcy."
Well with the current commondity/energy/food/whathaveyou inflation a half just doesn't go as far as it used to.
"I wonder why they didn't wait until the results of the exchange offer were in tonight. "
Because they already knew what those results were. This is/was a large pissing contest between Icahn and Starkey.....always has been.
Ciao
MS
While WCI remains cash-flow positive and our asset base is strong... Other than that, how was the play, Mrs Lincoln? When you're in the business of borrowing, building, and selling, the idea that that cashflow ex-borrowing expenses means anything is pretty silly.
I have a warm place in my heart for WCI and Ichan. He allowed me to establish a decent short position at $22, and I closed out (too early) at $4. The Yahoo message board for WCI was one of the best in terms of cogent analysis.
Effe
Well spank my naked ass. Looks like we have a little well deserved ass pounding going on here.
Help for a newbie. How does bad commercial paper affect money market funds and how does this result in "breaking the buck"?
Rdawg, I like the way your mind works but some days I can't keep up with the jargon.
TIA.
"Breaking the buck" refers to the real way money market accounts work. Sure you expect a variable rate of return based on market conditions but in truth that can also means variable NEGATIVE returns. To remain liquid MMF loan their deposits to the likes of Countrywide and WCI and list these as commercial paper. Commercial paper used to mean things like loaning Macy's for them to buy Christmas inventory or a machine shop to expand to make a new big order. Today it also means working capital for home builders. Fine when things are good. Things aren't good and it is unlikely the the MMF managers can afford to backfill to hold returns to just 0%.
My condolences on your misplaced admiration of my worldview.
Looks like I lost that wager with others on the board a while back, I had Standard Pacific in the death pool.
AllenM aka Joliet Jake writes: Or we could rename Ben the Kangaroo- now debt collapse is beginning to chase him like Yellow Dog Dingo...through the Flinders, the cinders....
Always hungry.
Just So.
Nice Kipling reference. Our most telling financial system metaphors are cartoons and fairy tales. Humpf.
"i absolutely love the "cash flow positive" comment, without paying the debt back of course. kind of like argentina."
For your information, we are about to be once again "cash flow negative" even without paying our debt.
Public expending has doubled in two years. Literally.
effen-
I'll take that as a compliment-as I posted many things from '06-mid'07......but I learned a great deal from a few on that board too...
Tulips (on that board) knew it before Icahn did....
Ciao
MS