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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: russwinter	10/3/2006 12:47:25 PM
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I suppose many here have read the Barrons piece on homebuilders? online.barrons.com This comment was interesting. The larger question I have is: have financial firms been using this minority JV gimmick to hide non-performing loans? Joint ventures, too, have allowed home builders to buy land, and even other builders, while keeping both the land and leverage off their balance sheets. For example, a developer seeking to purchase a $100 million piece of land with 40% equity might put up $19.6 million, or 49% of that equity stake, with a partner contributing $20.4 million, or 51%. The JV would fund the remaining $60 million with debt, which, because the builder's equity stake is less than 50%, would not appear on the company's books. Private-equity funds have been active participants in such deals.

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