I am still not sure why SPF is treated by market so much worse than other homebuilders. I have looked at Q3 results of pretty much ALL homies and some of them have fared much worse than SPF. For some reason they have not fallen so much though. So either I have no clue how to analyze these companies or SPF is just a poster boy for beating.
The positive side: management was pretty positive at Q3 conference call, balance sheet IMO did not deteriorate in the last quarter, their closest debt obligations are coming late 2008 (Q3 I think) and they are pretty sure to pay them. They have not violated any covenants yet.
The negative side: they were somewhat cash-flow negative in Q3 due to JV buyout. They are still buying out one JV this quarter. They told that they won't need to buy out others, but this is NOT guaranteed. Of course, they also told that JV assets go on the balance sheet, so the buy out does not necessarily decrease their credit worthiness. You can believe that or not. ;) Their convertible deal with lending shares for shorting was not a good one. Their share increase request is also not positive, since I do not think management explained why they are doing it. It's obvious they would not be able to issue shares and if they do another convertible deal at these prices, the dilution will be huge.
BTW, SPF is worth something only assuming 20% writedown on inventory + discarding goodwill and 100% of mortgages carried. If we also discard 100% of all JV carried on balance sheet and assume 30% writedown from Q3 inventory, it's worth pretty much zero. And this is a possible scenario. :/
The market is obviously panicking. It is unclear whether it's a panic based on concrete data, e.g. SPF hitting some covenant issues, that is unknown to me, or it's an irrational panic. If SPF shares continue falling, would THAT violate some bank covenants? I am afraid I am out of my depth on that.
So sure, it might go BK. I'd put it chances among BZH, WCI, HOV, although it's valued much worse than these. CTX and PHM are not in much better shape. And there are people arguing that even RYL, which is in better shape, will go BK. So there. :)
Disclaimer: I still own a position in SPF, MDC and ITB. Positions may change at any time. Like go "puff" when companies go BK. :) |
