August 5, 2008

WCI Seeks Bankruptcy Protection

By Patrick Danner, The Miami Herald

Aug. 5--WCI Communities, which added glitz to Florida's coastlines with its expensive condo developments, became the latest builder to succumb to the collapsing real estate market by seeking refuge in bankruptcy.

WCI, based in Bonita Springs, filed Chapter 11 bankruptcy protection Monday in Delaware after it couldn't come up with the cash to pay off $125 million that it owed bond holders.

The turmoil in the housing market has forced at least a dozen home builders to enter bankruptcy since last summer, including Fort Lauderdale's Levitt and Sons and Hollywood's Tousa, parent of Engle Homes.

"The real estate recession has crushed some of the best known names in home building that have been profitable for decades," said Jack McCabe, a Deerfield Beach real estate analyst. WCI "had been a very strong builder in Florida literally for decades."

WCI has roots throughout Florida, but may be best known locally as the successor to the companies that developed Coral Springs.

Today, WCI's Miami-Dade County developments include One Bal Harbour and Miami Beach's Mosaic, luxury condos priced from $1.1 million and $2.5 million, respectively, its website shows. In Broward, it's building homes in the Parkland Golf and Country Club and Heron Bay in Coral Springs.

In a sign of just how challenging the real estate business has been for WCI, it reported 84 new condo orders but 174 cancellations or defaults in the second quarter. A hundred of the defaults happened at one project, Pompano Beach's The Plaza at Oceanside condominium, the company disclosed last week.

"When you get more new cancellations than new sales it's damn near impossible to continue functioning," McCabe said.

WCI remains in business and, on its website, vowed to emerge from bankruptcy a stronger company. 'The filing will give us valuable 'breathing space' to address our financial situation while keeping our main focus on the company's core business and its future opportunities," the company said.

WCI gave no timetable for when it hopes to emerge from Chapter 11, which gives companies time to restructure their debts while maintaining operations. A WCI spokeswoman didn't respond to a request for comment. Besides WCI, 126 affiliates also filed bankruptcy. They did not include Prudential Florida WCI Realty, its brokerage arm, or WCI Mortgage.

WCI lost $100 million on revenue of $230 million in the three months ended June 30. It had almost $2.2 billion in assets and $1.9 billion in debt as of that date.

On its website, WCI cited the deteriorating real estate market and the company's substantial backlog of unsold properties as reasons for filing for bankruptcy.

"The company is a great development firm that got caught up in the housing boom," said David Dabby, a real estate analyst in Coral Gables. "They over-leveraged their properties and built more than they could sell. They were always relatively conservative. They just kind of lost their way."

The bankruptcy comes nearly a year after billionaire activist investor Carl Icahn joined WCI's board after his bid to buy the company for $22 a share was rejected by the board. The stock closed at 66 cents Monday. In a statement, Icahn, now WCI's chairman, said WCI tried to avoid bankruptcy.

Said Icahn: "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." Icahn holds 11 percent of WCI's stock.

That a shrewd investor such as Icahn couldn't effect a restructuring outside of bankruptcy is "pretty telling," said Miami bankruptcy lawyer Paul Singerman.

"It's indicative of lender anxiety in the home-building industry and how severe this downturn is," said Singerman, bankruptcy counsel for Levitt and Sons and Tousa, who does not represent WCI.

WCI said its secured lenders agreed to terms that allow the company to access $50 million in cash to operate the business. Certain senior lenders also have proposed providing a $100 million loan to WCI.

WCI is negotiating the terms of the proposal, which would require bankruptcy court approval.

Meanwhile, WCI replaced CEO Jerry L. Starkey.

David L. Fry, chief operating officer, has been appointed interim president and CEO.

This report was supplemented with material from Bloomberg News.


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