August 4, 2008 - WCI Communities, Bonita Springs FL

Home builder WCI Communities Inc filed for Chapter 11 bankruptcy protection after failing to obtain financing to stay afloat, chairman Carl Icahn said on Monday.

"The company, with all diligence, has attempted to avoid a bankruptcy filing. However, the filing became necessary," said Icahn, who owns about 15 percent of the company, or about 6 million shares.

On Monday, WCI's stock plunged 48 percent to 66 cents a share, a far cry from the $22 per share that Icahn offered for the company in March 2007. Icahn bought his stake in WCI in early 2007 for about $19 per share.

The company rejected his offer, and took itself off the market. Icahn was named chairman after a protracted proxy battle.

At the time he was elected chairman, Icahn said, "Despite the rough road ahead, I believe in the long-term value of the company and view the WCI platform as a unique vehicle to take advantage of the current market disarray."

The luxury builder, whose business is concentrated in Florida, one of the states hardest-hit by the housing downturn, sought bankruptcy protection after failing to meet an August 5 deadline for restructuring $125 million in convertible bonds.

The company had offered to exchange the debt for new bonds and stock warrants, but holders rejected that offer and insisted on being paid cash in full.

WCI defaulted on its bank debt on July 29 when its liquidity levels fell below the threshold required by its lenders.

"The banks have had enough, and understandably so," said Gimme Credit analyst Vicki Bryan.

The company has $2.18 billion in assets and $1.92 billion in debts, according to its bankruptcy petition.

EXECUTIVE DEPARTURE

Chief Executive Jerry Starkey will leave the company effective immediately after agreeing with WCI on a "mutually satisfactory severance package" and will be available for consultation, the company said in a statement.

Former Chief Operating Officer David Fry was named interim president and chief executive officer.

The company, based in Bonita Springs, Florida, has reached an agreement with its principal secured lenders to have access to over $50 million of cash to continue operating its business on an interim basis, according to the statement. WCI said it has filed a motion for approval of that arrangement with the bankruptcy court.

WCI said it has received a proposal from senior lenders to provide an additional $100 million of excess liquidity through a debtor in possession loan facility.

The U.S. housing market has been in decline since July 2006, when excessive building and loose credit standards triggered a decline in prices and a wave of foreclosures.

Tousa Inc, which builds single-family homes and condominiums, filed for Chapter 11 bankruptcy protection in January while Levitt & Sons, widely regarded as the builder of the first master planned community, filed in November.

Beazer Homes USA Inc is the builder most likely to declare bankruptcy next, Bryan said. When Beazer reports its third-quarter earnings on Friday, the company will probably reveal such significant write-downs on land that's losing value that it might trip the covenants its banks have set determining its minimum tangible net worth, she said.

"Beazer to me is the next weak sister," Bryan said.

Beazer did not immediately respond to requests for comment on Bryan's statement.

About 130 of WCI's subsidiaries also declared bankruptcy with the company, but its Prudential Florida real estate brokerage, its mortgage business and other joint ventures did not.

Original story - Reuters.com