Standard Pacific to generate positive cash flow, pay off senior notes in '08

By Jennifer Lanning Drey

Portland, Ore., Feb. 5 - Standard Pacific Corp. expects to generate positive cash flow in 2008 while also paying off the balance of its 6½% senior notes due Oct. 1, 2008, Stephen J. Scarborough, chief executive officer of Standard Pacific, said Tuesday during the company's fourth-quarter earnings conference call.

"Given our cash on hand and expected cash flow in 2008 we see no reason why we cannot retire the remaining 6½% senior notes due in October," Scarborough said.

Standard Pacific generated cash flows from operating activities of $348 million during the fourth quarter and ended the year with homebuilding cash of $219 million, compared with $5 million at Sept. 30, according to the company's earnings release.

"We were cash flow positive in 2007 and we believe we will end 2008 cash flow positive as well," Scarborough said.

The company expects to receive a $235 million cash tax refund within the next month but is likely to otherwise be cash flow negative during the first quarter due to seasonal trends, he added.

During the fourth quarter, Standard Pacific reduced homebuilding debt by $251.1 million through a $163 million reduction to the company's revolving credit facility, the purchase of $24 million of the 6½% senior notes and by paying down its trust deed notes payable by $66 million.

The company's balance on its revolving credit facility stood at $90 million at Dec. 31.

Seeking covenant amendment

Despite the debt reductions, Standard Pacific was not in compliance with the consolidated tangible net worth covenant contained in its $900 million revolving credit facility, $100 million term loan A and $225 million term loan B at the end of the fourth quarter.

The company said its breach of compliance was the result of the impact of a $180.5 million FAS 109 deferred tax asset valuation allowance charge the company was required to take for the quarter.

Standard Pacific has obtained a waiver of any default arising through the noncompliance through March 30 and intends to "immediately" begin discussions with its bank group to amend the covenant package, Scarborough said Tuesday.

When later asked for his opinion of the likely outcome of the discussions, the CEO said it would be premature to comment.

$440.9 million net loss

Continued weak conditions in the housing market led Standard Pacific to report a fourth-quarter net loss of $440.9 million, compared with a net loss of $98.4 million in the year-earlier period.

During the quarter, the company worked to strengthen its future financial position by exiting six joint venture partnerships and reducing the number of lots held in joint ventures by 45%. The company's absolute level of joint venture debt showed a year-over-year decline of 39%, Scarborough said.

Standard Pacific is also reducing inventory by cutting new home starts and community openings and decreasing land acquisition and site development spending.

"As we manage through these challenging times for the homebuilding industry, we have been focused on reducing our level of consolidated inventory, generating cash, paying down debt and improving our liquidity," Scarborough said.

The company expects conditions to continue to weaken in 2008.

Standard Pacific is an Irvine, Calif.-based builder and seller of single-family attached and detached homes.

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