U.S. Residential Builders Face Threat of Bankruptcy in Weak Market
- Jan 30, 2008
Irvine, Calif.–The housing slump and slowing economy has put U.S. homebuilders at risk of going bankrupt, the Financial Times said Wednesday.Spreads on five-year credit default swaps imply Irvine, Calif.-based Standard Pacific is the most at risk, with a 79 percent chance of defaulting, according to Douglass. Shares of Standard Pacific–which holds the second largest amount of joint ventures in the industry–dropped 93 percent this year. Standard Pacific declined to comment on its risk level.Credit default swaps on homebuilders–essentially corporate debt insurance–indicate some of the largest builders may not be able to keep their debt payments current. Standard Pacific, Hovnanian, Beazer and Meritage–some of the top 15 publicly-listed U.S. homebuilders–are the most exposed, says Byron Douglass, an analysts at Credit Derivatives Research, who feels leading homebuilder bankruptcies are “highly likely.”Bloomberg research shows at least 14 homebuilders have filed for bankruptcy since June; falling home and land prices have caused large U.S. homebuilders to post losses of almost $20 billion in the past year.In addition, new home sales in 2007 saw the biggest drop since 1963. As a result, builders have been trying to raise cash to stay liquid and are offering bargain prices to sell their inventory.Lennar, KB Homes and DR Horton, some of the nation’s largest homebuilders, may be safe from the threat of bankruptcy because they have altered their balance sheets and are heavily integrated across the U.S., according to the Times.