According a Reuters article, a unique blend of hedge funds, private investors and larger public builders are jumping in to buy land at distressed prices and invest in troubled builders in search of a big payoff when the market rebounds:
The precipitous slide in home values and a glut of unsold properties are pushing U.S. home builders to the brink of insolvency, but a posse of unexpected saviors could help keep the companies out of bankruptcy court until home buyers return.
Hedge funds, private investors and even larger cash-flush home builders are eyeing valuable swathes of land held by troubled companies, according to bankruptcy attorneys and restructuring specialists. As long as private firms have the cash to keep a struggling home builder running, they think they can profit when the real estate market picks up again...
Troubled home builder Standard Pacific Corp (SPF.N: Quote, Profile, Research), which builds homes in Florida, California and other major metropolitan areas, may be catching the eye of hedge funds. Hedge fund Tiger Global Management LLC has taken a 3.55 million share stake in the company, making it the fifth-largest institutional shareholder, according to Reuters. The firm declined to confirm the data or comment further.
Hedge funds are finding they can offer operating cash or long-term equity financing to distressed companies...
Still, it is risky for investors to bet on home builders or related companies. Declines in U.S. home prices accelerated in the first quarter, falling a record 1.7 percent from the end of 2007, according the national house price index of the Office of Federal Housing Enterprise Oversight (OFHEO), which covers home purchases.
As home values fall, builders are slashing plans for new developments and allowing land to lay fallow, cutting off their revenue stream.
Debt for companies, including Standard Pacific, is trading at distressed levels and banks are increasingly unwilling to lend to many home builders as the housing market weakens.
A Chapter 11 bankruptcy could protect some companies from creditors, while they restructure, but with analysts saying the housing market is unlikely to regain strength soon, liquidation may be their only option...
But the desperate and expedient measures required by bankruptcy and liquidation can cause much more pain for a company and its stakeholders. With a cash infusion from hedge funds or private equity, the company may be able to wait out the housing slump and its investors can reap the rewards, restructuring experts say.
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