WCI Communities lowers cash flow projection, obtains temporary bank loan covenant waiver

By Jennifer Lanning Drey

Portland, Ore., Nov. 8 - WCI Communities, Inc. reduced its year-end cash flow projection numbers after reporting third-quarter cash usage in operating activities of $53 million, chief financial officer Jim Dietz said Thursday during the company's third-quarter earnings conference call.

The company projects full-year cash from operating and investing activities to total between $210 million and $460 million.

Third-quarter cash flow was negatively affected by the later-than-expected delivery of the remaining units in WCI's One Bal Harbour project in Florida, higher defaults and a slower sales pace in the traditional homebuilding business, Dietz said.

Admitting that the projection creates a wide-ranged target, Dietz said, "Clearly, visibility is not perfect, even at this stage, into the timing of One Bal Harbour."

WCI's year-to-date cash flow from operating and investing activities was $59.5 million at the close of the third quarter.

Later in the call, chief executive officer Jerry Starkey said WCI will continue to focus on delveraging using operating cash flows.

Covenant breach

Also on Thursday, WCI announced that it was not in compliance at the end of the third quarter with the modified fixed charge coverage covenant related to its credit facility and term loan and had accordingly obtained a 30-day limited waiver of performance in order to finalize the details of an amended term sheet.

The minimum coverage required under the covenant is 0.50x, while WCI reported a 0.38x coverage ratio for the third quarter.

Although company executives said they could not provide further details on the financial covenant amendments expected, they did say they expect WCI's lenders to require significant concessions, which may include increased pricing, fees, commitment reductions and additional reporting requirements.

The company had a $448.7 million balance on its credit facility and a $358.5 million balance on its term loan at Sept. 30.

WCI was in compliance with all of its other debt covenants at the close of the quarter.

The company said assuming a favorable resolution to the credit facility violation, WCI's liquidity totaled $258.5 million at the end of the quarter. In addition, the company had $49.6 million of letters of credit outstanding at that date.

With demand remaining unpredictable and the housing market showing continued weakness, WCI also announced this week that it will reduce its workforce by about 575 employees for an estimated annual savings of $46 million. The company has reduced employment by 46% since its peak in mid-2006.

WCI reported a third-quarter net loss of $69.7 million, compared with net income of $10.7 million in the previous year's third quarter. Revenues were down 61% from the third quarter of 2006.

WCI is a Bonita Springs, Fla., builder of master-planned lifestyle communities.

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