WCI Communities hires Lazard to find 'creative solutions' to satisfy noteholders in light of cash limitations

By Jennifer Lanning Drey

Portland, Ore., May 7 - WCI Communities Inc. has hired financial adviser Lazard Ltd. to assist the company in finding a mutually agreeable solution to its expected lack of cash to pay holders of $125 million of its 4% convertible notes, which have a put date of Aug. 5, Jerry Starkey, chief executive officer of WCI, said Wednesday during the company's first-quarter earnings conference call.

"Liquidity continues to be tight and will continue to be tight in the future absent changes in the market, which we certainly aren't expecting in the near term," Starkey said.

"At this point, we don't have visibility into the liquidity that would enable us to satisfy those $125 million of converts for cash."

WCI expects to begin discussions regarding alternative solutions with the convertible holders in the near future, he said.

"Hopefully we can come to some creative compromise to deal with the converts. We're open for creative solutions," Starkey said.

Cash limitations

For the three months ended March 31, WCI generated net cash from operating and investing activities of $66.4 million, compared with $94.6 million in the same period a year ago.

The company ended the first quarter with cash and cash equivalents of $48.5 million. The number was down from $188.8 million at Dec. 31 due to $200 million of debt repayments made during the first quarter, Ernest J. Scheidemann, chief financial officer of WCI, said during the call.

As previously reported, the company has cash-use restrictions that resulted from amendments made in January to its revolving credit agreement and term loan.

Excluding $53.4 million in letters of credit, WCI had $192.4 million of available commitments under its senior secured credit facility, which was further limited by borrowing base availability that was estimated at $115.0 million at March 31, plus the cash and cash equivalents balance, according to its earnings release.

Additionally, WCI's lenders are in the process of obtaining appraisals on properties in the company's borrowing base, which could further limit WCI's borrowing capacity, the company said in the release.

WCI had total debt of $1.7 billion at March 31.

$84.1 million net loss

WCI reported an $84.1 million first-quarter net loss, compared with a net loss of $15.8 million in the first quarter of 2007. Revenues dropped by nearly 60% as compared to the 2007 quarter.

"It continues to be a tough market with really no signs of firming demand. Some smart and courageous buyers are snapping up bargains, particularly in Florida, but most shoppers we see in our sales centers are concerned about the direction of prices and more and more the direction of the overall economy," Starkey said.

During the first quarter, the company saw a seasonal lift in sales in Florida, which helped lower inventory, but most sales were made at a discount, he said.

The company's traditional homebuilding segment reported $6.9 million of impairment charges during the first quarter, which were primarily related to backlog orders that were cancelled.

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

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