American Home up on bargain hunting; RAIT drops on AHM exposure; C-BASS flounders; Beazer goes wild

By Evan Weinberger

New York, Aug. 1 - Dominoes continued to tumble Wednesday after American Home Mortgage Investment Co.'s Tuesday announcement that it couldn't access its credit lines, couldn't pay off its debts and was seeking strategic alternatives.

Meanwhile, the two companies that underwrite Credit-Based Asset Servicing and Securitization LLC, a New York-based mortgage and real estate lender better known by the acronym C-BASS, were facing a large amount of scrutiny Wednesday. Milwaukee-based MGIC Investment Corp. and Philadelphia's Radian Group Inc. announced that they may have to write off more than $500 million that the two companies invested in C-BASS.

Stock markets worldwide went into sell-mode following Tuesday's volatile trading day on Wall Street. American equity markets followed up their Tuesday performance with another uneven session Wednesday.

Shares in Philadelphia-based RAIT Financial Trust continued their downward spiral Wednesday after the real estate investment trust, which provides debt financing to the real estate sector, announced that it had $95 million in exposure to American Home Mortgage.

While the carnage continued in the mortgage arena, one piece of decent, but not great, news did come from the real estate sector. The National Association of Realtors announced Wednesday that a forward-looking index tracking contracts signed for new homes is looking up. According to the realtors, the Pending Homes Sales Index, which tracks contracts for home purchases yet to close, was up 5% in June at 102.6. The index stood at 97.6 in May. An index level of 100 is equal to the average level of contract activity in 2001, when the National Association of Realtors started the index.

The 5% jump was the largest month-to-month rise since a 6.1% increase in March 2004.

The news from the National Association of Realtors wasn't all good, as the June 2007 index was down 8.6% from June 2006, when the index stood at 112.

The wildest ride of the day was taken by Beazer Homes USA Inc., which saw its stock plummet 40% and its bonds follow the lead on rumors that the company was going bankrupt.

But a press release from the company calling the rumors "scurrilous and unfounded" and a favorable report from JPMorgan stopped the slide. The stock did wind up losing nearly 18% and the bonds only regained losses, however.

Stock markets had another muddled day Wednesday following a global selloff that was in response to Tuesday's tumble. The Dow Jones Industrial Average rose 150.38 points, or 1.14%, to close at 13,362.37. The index had been vacillating between 50 points up and 50 points down, give or take a few. The Nasdaq spent most of the day lower before it, too rallied, closing up 7.6 points, or 0.3%, and finishing the day at 2,553.87.

One long-ruminated over deal did get done as the Bancroft family agreed to News Corp.'s $60 per-share, $5.6 billion offer for Dow Jones & Co., the media company that publishes The Wall Street Journal, Dow Jones Newswires, Barron's magazine and other media properties.

After agreeing to a five-person panel meant to guarantee the editorial independence of the business newspaper of record, and reportedly several additional financial sweeteners, the Bancroft family agreed to sell to Australian media tycoon Rupert Murdoch late Tuesday night. There was no word when the deal would close.

Shares of both companies moved higher on the news Wednesday. Dow Jones stock (NYSE: DJ) moved up 72 cents, or 1.25%, to $58.10, nearly $2 below the sale price.

News Corp. A shares (NYSE: NWSA) moved up 12 cents, or 0.57%, to $21.24. News Corp. stock traded under NYSE: NWS also moved up, gaining 16 cents, or 0.71%, to close at $22.82.

One deal that won't be happening is Salton, Inc.'s merger with APN Holding Co., Inc. Lake Forest, Ill.-based consumer appliance maker Salton had agreed to acquire APN Holdco, another appliance maker in February.

But APN sent a written notice backing out of the agreement, according to a statement released by Salton Wednesday. "This wrongful termination confirms Salton's belief that APN Holdco has, for some time, not acted in good faith and Salton intends to vigorously pursue its claims and remedies against APN Holdco, its affiliates and representatives," the statement said.

Salton stock (NYSE: SFP) moved up on the news, gaining 5 cents, or 6.67%, to close at 80 cents.

Subprime fallout continues Wednesday

A day after American Home Mortgage stock lost just over 90% of its value, bad news continued to roll in for mortgage lenders Wednesday.

Shares in RAIT Financial Trust continued their downward spiral after the Philadelphia-based real estate debt financing operation announced that it had $95 million in exposure to the American Home Mortgage. The stock (NYSE: RAS) lost 54 cents, or 5.21%, to close at $9.82.

Shares in American Home Mortgage had nowhere to go but up Wednesday after Tuesday's beating, and that's just where they went. Bargain hunters drove the price of the stock (NYSE: AHM) up 44 cents, or 42.41% to $1.48.

The two companies that back C-BASS were facing a large amount of scrutiny Wednesday. MGIC Investment and Radian Group both closed sharply lower after the two companies, which are set to merge later in the year, announced that they may have to write off more than $500 million that the two companies invested in C-BASS.

An unanticipated spike in margin calls has hurt the firm's liquidity, C-BASS said in a statement, but the company is still performing well. "To address [the liquidity issue], C-BASS is in advanced discussions with a number of investors to provide increased liquidity and is exploring all options to mitigate the liquidity risk in this difficult market," the statement continued.

Investors were in no mood for C-BASS's assurances, and the companies that form its backbone suffered the consequences. MGIC Investment stock (NYSE: MTG), lost $3.90, or 10.09%, to close at $34.76.

In comparison, MGI got off easy. Radian Group stock (NYSE: RDN) lost $6.20, or 18.39%, to close at $27.51.

Beazer Homes' wild ride

Executives at Beazer Homes got to work Wednesday morning and had to deal with a torrent of rumors that the Atlanta-based homebuilder was about to declare bankruptcy.

The company's stock (NYSE: BZH) fell around 40% in morning trading and its bonds also suffered.

The company at least put a temporary halt to the rumors with a press release. "We have become aware of rumors circulating in the market about Beazer Homes' liquidity and a prospective bankruptcy filing," the statement said. "We do not know where these scurrilous and unfounded rumors started."

JPMorgan also issued a report calling the Beazer Homes bankruptcy speculation "false, in our view."

Those statements, in turn, sent Beazer Homes' stock and convertibles shooting up. Beazer bond values across the spectrum rose, regaining most of the day's earlier losses, as did the stocks. But the stock losses were too much to overcome.

Beazer stock closed down $2.51, or 17.94%, finishing the day at $11.48.

"The thought is one of these homebuilders is going to go bankrupt at some point," one analyst said of Beazer Home's convertibles. "They bounced back, but that's the state of this market. Clearer heads are buying on these dips."

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